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Kalzumeus Software Year in Review 2014

Posted on December 22, 2014 by Patrick in startups, stats

I’m Patrick McKenzie, perhaps better known as patio11 on the Internet. Back in 2006 I created a side project selling software. This eventually morphed into something a little more. Since 2010, running this software business has been my full-time gig.

Every year, I publish a writeup of how the year went, what the statistics for the business looked like, and what I tried that went well or went poorly. This is partially for my own planning purposes (very useful, by the way — I recommend you do a writeup, too, even if you only publish it to your hard drive) and partially in the hope that other folks can use bits of it. You can read the write-ups for 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, and wow do I feel old.

(Hint for Googlebot: If someone is looking for Bingo Card Creator Year in Review 2014 or Appointment Reminder Year in Review 2014, this is the right place.)

What’s new about this writeup?: In previous years, I’ve been coy with the numbers for Appointment Reminder. This has always be mildly irksome for me, as I would prefer to have them here, but I had justified it because I was perpetually on the fence about perhaps taking investment money at some point, and having numbers publicly available would complicate that process.

For more thoughts on why, see below, but I’m virtually positive I won’t try to raise funding for Appointment Reminder, so I’m deciding to burn those ships behind me and run the business the way that I’d rather, and that includes being present in this writeup. (To the maximum extent possible compatible with my commitments to clients, vendors, and contractors, at any rate.)

Where are the expense numbers?: Way down below. I previously broke down expenses on a per line of business basis, but due to process changes with how we do bookkeeping, I can’t do that anymore. That breakdown was always kind of handwavy — for instance, I allocated 100% of our server expenses to BCC, which was true in 2006 but ludicrous today — so I’m just killing it.

Capsule summary: This was a pretty good year business-wise. I didn’t quite hit the goals which I had set out last year, due to some major reconfigurations of priorities mid-year, but I’m reasonably satisfied with it in most respects. I finally feel like Appointment Reminder is making sustainable progress. BCC is basically a vestigial project at this point.

My one major regret is that I was pulled in a few too many directions and, as a consequence of that, didn’t hit a shipping target for one of my products.

My businesses grossed roughly $200,000 in sales and produced roughly $120,000 in profit. (These numbers are slightly fudged for sensitivity of enterprise deals — see below.)

Disclaimer: For the first time in my life, I actually have really solid books for the business (thanks Bench — more on that later), but for continuity with my informal style for previous years, the following numbers do not match the books. They’re also my best guesses as of today, which is complicated, since we haven’t closed books for December yet. Treat these as approximations rather than audited financial figures.

The Year In Brief

Appointment Reminder finally got a bit of attention paid to it in a sustained fashion. For the last four years running it has theoretically been my main business priority. Practically speaking, though, I’ve treated it with benign neglect.

This year our monthly recurring revenue is up by about 35%, I’m no longer the sole person in the business, and I have a much better handle on where it is going than I did previously.

Bingo Card Creator continues to be in maintenance mode. Sales continued to fall off a cliff, largely due to a decline in traffic from Google/AdWords and my neglect of it, which may or may not be related.

Productized consulting produced my greatest regret of the year: the course on A/B testing which I’ve been working on for a year and took pre-orders for last December didn’t completely ship in 2014. As to why that happened, don’t worry, we’ll talk about it in a minute.

Since I didn’t feel right spinning up new projects with an existing one which was stalled, I did no training events, no new products, and no launches for old products, which caused substantially below-plan sales.

I did one small consulting engagement, even though I thought I was done with consulting.

I didn’t do any new angel investing this year, mostly out of lack of bandwidth, both in terms of attention and in terms of ability to write checks. I tried to continue helping out the folks at Riskpulse and Binpress. I also started working as a formal advisor (formal paperwork, actual duties, an equity grant, etc, as opposed to informal “Yeah, I love talking about this stuff, email me any time” that I do with basically any geek on the Internet) with a pair of startups, MakeLeaps and another which I can’t talk about yet.

Appointment Reminder

Appointment Reminder is a SaaS product which sends automated phone calls, text messages, and emails to the clients of professional services businesses, ranging from tutors through HVAC companies on our publicly available plans to nationally-renowned hospitals and service firm chains on our enterprise plans.

In principle we’re capable of providing services at anywhere from about $5k to about $100k per year to enterprises, but in practice, we haven’t closed a six figure deal yet. I want to someday, more for the merit badge than the money, but when we were very close to the finish line earlier this year on getting one, I had to withdraw due to inability to provide services in the required timeframes.

I can’t tell you the exact number, but pretend the largest check we’ve ever received (not in this calendar year) was for $75k, since that is roughly accurate. I walked it into the bank and was shaking because I thought they’d shoot me for attempting a robbery. They didn’t.

Before I get into the numbers, a bit of context about goals: My software business was a sideline to my day job prior to going full-time in 2010. I started Appointment Reminder literally days after quitting, and at the time I thought “For the moment I’m going to run this similarly to my existing business, without stressing too much about it or jumping in with two feet or taking investment, because I don’t know how life is going to change as a result of going full-time.”

I didn’t predict that I’d soon meet the most wonderful woman in the world and successfully court her (lifetime conversion rate on marriage proposals: 100%, booyah) or that I’d fall backwards into running a fairly in-demand software consultancy.

While this was happening, I often thought “I might try to take Appointment Reminder to The Next Level (TM) sometime.” I spend a lot of time on Hacker News and am peripherally involved in the startup community, and a lot of folks have wanted me to roll the dice on a funded startup with big put-a-dent-in-the-universe ambitions. At times, I wanted to want that for myself, but for the moment I was content to keep running my business in the traditional fashion. I work mostly on what I want to work on, take a day off whenever I feel like it, and optimize the business for quality of life rather than for any particular growth or financial targets.

To maintain optionality for taking funding, I have avoided speaking publicly about Appointment Reminder’s trajectory. Well, to be honest, that’s the excuse I’ve given. At least half of the real reason was that I’ve been disappointed with Appointment Reminder’s performance. If you had asked me in 2010 where I thought AR would be at in 2014, I’d have said “$500k a year or so.” It’s not there. I feel embarrassed by this — some people are accountable to investors for quarterly performance, and I feel an analogous sense of obligation to a lot of people who think I’m a smart guy and should, therefore, be running a business with a certain amount of scale.

Is it weird to say that is distinct from actually wanting the money? I wouldn’t mind a little bit more to establish more of a buffer for my family, but other than that, money qua money doesn’t buy me anything I don’t already have. It might as well be WoW gold.

As long as I’m putting fairly personal thoughts in the report this year, let me add another one: Appointment Reminder has been one long bloody slog. I have not frequently enjoyed the business until up to a few months ago. Why not? Well, a bunch of reasons, most keenly one which Peldi warned me about back in 2010: I don’t really care about the problem it solves.

I’m not the world’s most avid player of bingo, either, but with Bingo Card Creator I really sunk my teeth into doing low-touch software sales and marketing over the Internet. That was an enormously fun and engaging problem, even though making bingo cards is not. (The app proper has been described as “Hello World with a random number generator” and that’s only a tiny exaggeration. I have played perhaps two games of bingo in the last ten years. The only time in recent memory I used it myself was when a Redditor asked for anti-Bitcoin bingo cards, a request which I am unquestionably the best qualified person in the world to answer.)

I like that Bingo Card Creator has helped to teach millions of students to read, and I like that Appointment Reminder helps get patients to the doctor on time and puts the children of some of my clients through school (via increasing the revenue of their businesses), but these businesses don’t really excite me.

Peldi told me I should do a business which excites me. I told him that Appointment Reminder was a boring problem space but a great business, and that I’d find some challenge in it which was different than what I’d done with BCC. As it turns out, AR didn’t offer a lot of fun new challenges — it offered the same old been-there-done-that work that BCC had offered, and while doing BCC for the first few years was a form of play, AR was very much work. I often avoided things that would be clearly beneficial for the business just because they were a boring grind, to focus on other things, from the consulting business to my personal life to, well, far too many games of League of Legends.

I’ve recently sunk my teeth into systematizing Appointment Reminder’s sales operations and this is, for the first time in ~4 years, a fun problem to work on for Appointment Reminder. That said, it’s like maybe a 7/10 fun problem. I realized recently that, while I had been saying “Yeah, maybe after I grow Appointment Reminder a little bit and want a new adventure I’ll take investment for it and shoot for the moon”, but intellectually speaking I know what that would have to look like, and it commits me to working for another 5+ years on a product/problem/market segment which, on its best days, is 7/10 in terms of fun.

Life is too short to do that. I certainly do not intend on devoting 90%+ of my career for the next five years to Appointment Reminder, so I won’t take investment for it. (That would be unfair to the investors.) Given that, there’s no harm in sharing the numbers.

Appointment Reminder Stats

Appointment Reminder’s key stat of interest is monthly recurring revenue on our publicly available plans, since this is the most predictable revenue in any of our businesses and thus lets me make consequential decisions like “Move the family to Tokyo, where rents are 5X what they were in Ogaki” (that happened, more later” or “Bring on help” (that also happened, more later).

Here’s the graph since we launched in December 2010. This is an MRR graph, so when we get annual pre-payments (we offer 12 months of service for 11 months of cash up front), they’re pro-rated over the next 12 months on this graph. However, since we’re a cash-basis business, the revenue number for the year will be higher.

MRR as of December 2014: ~$6,500 (up roughly 35% YOY)

Revenue for 2014 (on the publicly available plans): ~$75,000

Both of these numbers are approximations — we have credit card charges which will happen between now and December 31st, and they’re fairly predictable.

Brief fun digression on how much I love the SaaS model: our oldest customer signed up in January 2011, weeks after we launched publicly. He has since paid us $1,334, $29 at a time.

Our presently available plans are on the pricing page. They’re primarily segmented by appointment count. This is a decent if imperfect proxy for value a customer gets from Appointment Reminder. It is imperfect because an HVAC company which saves an appointment can earn $2,000+ in revenue. A hair salon, on the other hand, only values an appointment in the tens of dollars.

Once upon a time we had a $9 Personal plan available, but the customers who signed up for it were pathological in every sense of the word — some cost hundreds of dollars in imputed support costs then demanded that we send out $5 rebate checks for “unused” appointments. We killed that option a few years ago — I should never have offered it, but I thought I’d be able to pitch it to productivity bloggers at Lifehacker and the like and thereby gain exposure to their audience which might include office managers at professional firms. That never materialized.

Our target customer for the publicly available plans is the office manager who would otherwise be doing the calls herself. I call her Office Manager Milly. She’s comfortable with basic computer usage but not a technologist, earns about $20k to $50k a year, is generally an employee rather than owner of the business, is usually in her thirties or forties, and she has independent authority to make the purchasing decision. She works for a professional services firm, like a legal firm, an accounting practice, an HVAC installation firm, a plumbing firm, yadda yadda.

This is distinct from a personal service firm, like say a massage therapy practice. I thought personal service firms would be a big chunk of our book of business, but they aren’t: they’re smaller, they often are operated in non-businesslike fashions (many hair salons have no one accountable for making sure people actually come to appointments, but Milly is accountable to the business owner — this is one of her core tasks), and their per-appointment value is so low that losing an appointment doesn’t really constitute a hair-on-fire problem for them. It is a hair-on-fire problem for Milly: she can often be in trouble with the boss if she forgets to send a reminder even if the client makes the appointment anyhow, because potentially hundreds or thousands of dollars of revenue was just put at risk.

Anyhow, our publicly available plans range from Professional ($29, 100 appointments) to Small Business ($79, 300 appointments) to Office ($199, 1,000 appointments). This will likely change early next year — I’m taking my own advice to charge more, and re-aligning those numbers with actual customer behavior rather than the numbers I guessed four years ago.

I picked the original appointment quotas half based on projections and half based on total guesswork. My rough, untutored impression was that a personal service provider (stylist, massage therapist, etc) might average five appointments a day. I then linearly extrapolated how many workers would provide services at various target firm sizes and then fudged the resulting numbers a bit to provide a volume discount and to have round numbers. Translation: our pricing is, basically, made up.

Most of our customers are on the Professional plan, which annoys the heck out of me, but it’s my fault. Since I was thinking personal services, where 100 appointments a month barely sustains a sole practitioner (it implies $3k to $8k gross revenue), I thought any sizable business would be forced to pay more meaningful amounts of money. It turns out that you can run a nice boutique law office with sales in the high seven figures or an architectural consultancy with millions in revenue on less than 100 appointments a month. Believe me, I know several examples.

Anyhow:

Paying account breakdown: 142 (as of today)
Professional: 106
Small Business: 31
Office: 5

Churn rates: Churn is the percent of accounts which paid us money in month N who did not pay us money in month N+1. As we’re on a card-upfront free trial model, this definition structurally excludes someone who fails to continue a free trial as a churned account. That is in keeping with the business purpose of the metric: churn measures accounts which we once serviced satisfactorily which at some point were not willing to continue purchasing services, where trial conversion rates measure our effectiveness at convincing people that AR is right for their business.

We track it on a per-plan basis, since our customer behavior is wildly different. As a benchmark for you, for B2B SaaS sold on a month-to-month basis on a low-touch model, 5% is on the high side, 3% is what you should shoot for, and 2% is best-in-class.

I rather suspect that our churn rates have gone down over time as our product has improved, but that is difficult to tell, partly because we churn rates are very volatile at the (small) number of accounts we have. Our churn rates since inception are:

Professional: ~7%
Small Business: ~6.9%
Office: ~3.8% <— very small sample, so this number in particular is noisy as heck

I’m mildly dissatisfied with these churn rates, particularly in the months where churn eats the MRR increase from new converted trials (as happens occasionally), but they are what they are. In a more mature business than AR, I’d spend a lot more resources measuring this and working on the causes of it, but AR’s bigger problem is not closing enough new accounts every month for churn to really matter yet, so I prioritized working on sales recently rather than working on churn directly.

We track reasons that people churn. I separate that feedback into reasons we could have addressed and those which were beyond our help. “You didn’t respond to my emails” or “I needed the software to do X” plug back directly into our decisionmaking. Unfortunately, the bulk of our cancellations are for reasons like “We migrated to a solution which includes your product as a feature” or “We never really convinced the whole team to use it.” Historically failure-to-adopt has been something that we only can weakly influence, but we’re actively working on that with concierge onboarding/customer success as one facet of the sales initiatives.

Knowing churn lets you calculate the lifetime value of customer accounts. (LTV = Monthly price / monthly churn rate.) They are, assuming you trust our churn numbers as roughly representative:

Professional: ~$400
Small Business: ~$1,000
Office: ~$5,000

Knowing these numbers let us budget for paid acquisition (though we don’t do any significant amount of it — I’ve experimented halfheartedly but haven’t found a channel that works yet) and prioritize which accounts get proactive outreach from our sales rep and how much attention (and, ahem, commissions) we can afford.

Free trial acquisition: Our primary channel is organic Google search, by a factor of lots. This is partially driven by us ranking well for generic terms ([appointment reminder], [appointment reminder software], etc), very modestly by the sort of scalable content creation that put BCC on the map (I was unhappy with the content quality of our initial experiment into this for AR and opted not to scale until I fixed the process causing the quality issue… and then simply ignored that topic for the next 3 years), and referrals from clients.

Many people who run professional services firms are themselves consumers of professional services firms. If a lawyer gets an automatic SMS from their accountant, they might ask the accountant “That’s amazing. I wish I had that.” The accountant tells them “Ask the office manager what we use for it.” She says: “It’s really easy to remember: Appointment Reminder.” They Google it, bam.

It wasn’t the world’s most inspired naming choice, but the $8.95 I paid for the domain name is probably the best ROI of anything I’ve ever bought. (AR is virtually guaranteed to be a mortal lock on the query [appointment reminder] due to the combination of the exact match domain bonus and the fact that most links to it naturally cite the name of the company. The fact that it is a .org is irrelevant, except in that the .org was $8.95 and the company which owned the .com wanted $30,000 for it.)

So given our very, very lackadaisical marketing, we have very low traffic and a fairly modest number of free trials per month:

Unique visitors (2014): 66k, of which many are existing customers. Yep, this whole business has less traffic than my most popular blog post from 2011. I know, the irony, right?

Conversion to free trial: Due to the high percentage of people visiting our homepage who are existing customers, I feel like the most representative view of the funnel I can give you is this one (pulled straight out of Kissmetrics):

Free trials (card up front) (2014): ~350
Trial conversion rate: ~42% <— Would you believe I actually had no screen to track this number, simply because calculating it was not straightforward due to technical debt? Yep, I know, embarrassing.

You’re thinking “42% conversion rate! That is very high!” For low-touch B2B SaaS which you can sign up to without a credit card, it is generally closer to the 2~5% region. We require a credit card, both to prevent abuse of the system (ask me about the time AR was used to violate a temporary restraining order by, essentially, proxying harassing phone calls) and because forcing people to take their free trial seriously means that the increase in trial conversion rate is greater than the number of accounts we lose due to requiring the card.

Against comparable companies with cards required upfront, I feel like 42% is a happy place to be, but not outstanding yet. Hopefully it will increase by having more human outreach available. Additionally, we lost a lot of trials due to non-responsiveness to CS inquiries earlier in the year when I was sick. As one customer accurately opined in an irate email: “How can I trust you with my business long-term if you won’t answer an easy question on day 1?” (I apologized. Nothing else to do, really: under the health circumstances I wasn’t going to further stress myself over $29 a month.)

Since someone always asks me: no, no, no, we don’t hope that Office Manager Milly signs up for the trial and then forgets about us. We send at least ~5 emails during the free trial and, now that we have a sales rep, have an actual person manually reaching out, too. If someone’s account looks abandoned, I eventually get in touch with them and then terminate it proactively if I don’t hear back. I have gotten more complaints about that policy than you’d think: “Hey, why’d you close that account?!” “Because you hadn’t logged in in several months, had no client data in the system, and did not respond to several attempts to get in touch. I didn’t feel right taking your money.” “We were getting around to it! Open it back up again!”

Enterprise deals: I still can’t tell you numbers with a high degree of resolution here. We cashed only a handful of invoices this year, from AR and from one quick consulting gig, and any level of granularity gets legally dicey. Let me ballpark it as $50k < X < $100k.

As to how enterprise sales works at Appointment Reminder? In lieu of repeating myself, I covered it the other day and nothing changed over the weekend, so check out that writeup.

Vanity metrics: Our non-enterprise customers had 141k appointments (double last year) and sent over 200k reminders, saving the equivalent of about four full-time people doing nothing but dialing phones and leaving voice mails under sweatshop conditions. We saved our customers several million dollars in aggregate that would have been lost due to missed appointments.

My favorite story on this, from the principal of a contracting firm, is that his daughter is going to Harvard on the Appointment Reminder scholarship (when you lose $2k on a missed appointment it adds up quickly). We’ve also got a small pile of notes from folks in all walks of life thanking us for getting them to their doctor appointment, chat with the immigration lawyer, cable company, and he like on time.

Appointment Reminder: What Went Right

I did some sustained A/B testing on AR for the first time earlier this year. The full writeup would make an already long post even longer, but suffice it to say that we rejiggered the signup process and had a ~50% increase in the number of free trials as a result. I’ll talk more about that test in the future.

I also did some long-delayed work on automated customer onboarding and first-run experience earlier in the year, with the upshot that people are more likely to succeed in getting up-and-running and hence more likely to convert. Probably. I don’t have really great historical numbers there, but sentiment from customers improved and I got less “This is confusing. How do I…?” inquiries, anecdotally.

I have, finally, started working with other people. Appointment Reminder presently has two people working on it part-time, though this is only for the last few weeks so we don’t have great results to show yet. My virtual assistant who has been doing CS for Bingo Card Creator for several years is getting spun up as tier-one CS for AR, and I have a commission-based salesperson doing a combination of outreach to inbound leads and customer success style management of people’s trials.

I built software to support sales — easily the most fun thing I’ve done in AR since the original buildout of the core functionality — which helps the above-mentioned folks do their jobs. I recently wrote about that in considerable detail.

To build out that software and get the team spun up, I had to actually sit down and document our business processes, which was a great opportunity to force myself to actually think through them. The discipline of doing this made me confront a bunch of very obviously not optimal decisions I had made, like the lack of anything even approaching a repeatable sales process for enterprise details, so now we have one. Hopefully we can execute on it a bit in 2015.

Appointment Reminder had rock solid reliability in 2014. We had no systemwide outages, for the first time ever.

We did have an exacerbation of the “server occasionally times out during a phone call” problem that I mentioned last year was a real stitch in my craw. Errored-out calls increased from “a handful a week” to “a dozen a day”, which lit a fire under me to finally spend time investigating and fix things.

It turned out to be a combination of poor configuration choices for the MySQL server and the lack of an index for a particular query caused by our auditing system, which wasn’t a problem back when there were only thousands of audit records, but wasn’t quite so ignorable when it got to millions of audit records.

That issue is now fixed. I haven’t succeeded in completely eradicating timeouts yet. We dropped three calls in December. That is three too many.

Appointment Reminder: What Didn’t Go Right

Health management / burnout: Virtually all of the good news for AR this year happened between July and December. I accomplished very little which meaningfully drove the business forward in the first half of the year. This was due to a complex cocktail of stress, illness, and competition with the conversion optimization course for cycles (about which, more later).

This manifests itself, most commonly, as me fleeing from forward progress on the business and, on particularly bad days, avoiding my inbox. Avoiding my inbox never helps on stress levels, because I think that if I open it there will be more stress… and then it is suddenly Thursday and I haven’t checked emails since Monday. This caused me to deliver suboptimal customer service at a few points in the year — much better than last year, but still not where I’d like it to be.

I waited way too long to bring people on. Hat tip to Jason Winder, a good friend and fellow CEO, who finally managed to smack some sense into me. Here’s hoping that I can retain the fundamental character of the business while now having folks who I’m responsible to.

Due to having no process for closing enterprise leads and not enough brain cycles free to do the wildcat shoot-from-the-hip stuff which got us our existing enterprise customer base, our enterprise pipeline dried up early in the year and, as a consequence, we closed very little additional enterprise business.

Bingo Card Creator

Bingo Card Creator is a B2C SaaS application which is sold on a one-off transactional model (hint: don’t do this), primarily to elementary school teachers.

BCC was very firmly in maintenance mode. Substantially all customer support for it is done by my virtual assistant. I only get involved for refunds or harder issues where we have to do hand-fixes in the Rails console.

I worked less than five hours on Bingo Card Creator this year. It runs itself… not particularly well, but it runs.

BCC traffic, which is quite seasonal, peaked in 2012/early 2013 and has been on a steady decline since then. This decline accelerated in 2014. I assume it is due to some combination of the content on the website being stale (nothing has materially changed since, oh, 2011 or so?) and perhaps changes to Google’s algorithms, which I don’t actively keep abreast of these days.

Additionally, we’ve historically gotten a large portion of our traffic from AdWords. That also hasn’t been touched since 2011 other than buying Larry and Sergey a few more drink coasters made out of materials that can only be created in the Large Hadron Supercollider. AdWords is identifying less opportunities for our ads to be run profitably, hence showing them less, hence sending us less traffic (though costing us less in absolute numbers, so that partially balances).

I have done nothing to address the decline, as it is economically irrational to try to recapture those halcyon days of ~$5k a month sales when for the same amount of work I can hand off major portions of AR’s workload, cut my stress massively, and almost certainly make more money in the long-run.

BCC Stats

Sales: 1,128 (down 35% from last year’s 1,734)

Refunds: 15 (down from last year’s 57)

Sales Net of Refunds: $33,319.35 (down 33% from last year’s 50,156.16)

Profits: ~$20,000 (estimate based on best guess of allocation of costs to BCC which is consistent with last year’s number, down from ~$23,000 last year)

Wage Per Hour: ~$4,000 — I was checked out of BCC this year

BCC Web Stats

Visits: 500k (down 35% from last year’s 770k)

Unique visitors: 430k (down 32% from 630k last year)

Page views: 1.5M (down from 2.4M)

Traffic sources of note: Google (51%), AdWords (16%), direct (11%), BingHoo (11%)

Trial signups: 41,000 (down from 61,000)

Approximate trial to purchase conversion rate: 2.8% (up modestly from 2.6%)

BCC: What Went Right

There’s a lot to be said for having a business which runs totally on auto-pilot.

BCC: What Went Wrong

Traffic has continued to fall off a cliff, as mentioned previously.

I had collaboration issues with a consultant, which didn’t meaningfully impact business results (the trajectory on BCC is pretty clear), but which caused him unnecessary stress, which I regret. I had engaged Nick Disabato’s Draft Revise service to do A/B testing for BCC. My expectation with working with Nick was that I’d basically write checks and never have to think about the matter again. Nick wanted a more collaborative process with me, which I was not particularly unwilling to provide but which I did not prioritize actually making happen. As a consequence, I missed emails from him for months at a time, which inhibited his ability to do his work.

How disengaged was I from Bingo Card Creator? Nick and I got together for lunch last week and one of the things I wanted to tell him was that I wanted to dissolve the relationship amicably as I didn’t have time/effort/desire to manage it and he had previously expressed concerns about that. Nick brought up that he had actually stopped charging me several months ago and stopped work at the same time, and that I would have known this if I read the emails he had sent me. Whoops.

I’m glad he’s now freed up to work with better clients than me. They can actively engage with him on products which have a bright future ahead of them. That way, the insights he pulls out of the A/B testing process can actually get looped back into the product/marketing on a timely basis.

So if that was my level of responsiveness for someone working with me, how responsive do you think I was to customers? Yep, luckily my VA takes care of 95%+ of issues by herself, but the remaining 5% which got escalated to me (refund requests, etc) were often delayed by, literally, weeks at a time. I regret this — when I noticed it I apologized to customers, but that level of responsiveness makes me feel like BCC has become a business which is other than the kind I want to operate. I’m going to fix it or get it into the hands of someone who can.

Consulting

I had quit consulting last year, but had the combination of a wonderful opportunity fall into my lap at the same time as a move to Tokyo was in works. I can’t say anything about the engagement. Basically, same old same old, I built systems that helped make a software company a wee bit more efficient at getting a great product into the hands of more people.

The Move To Tokyo

So in lieu of that, let’s talk Tokyo. My wife and I moved from Ogaki, the small town in Japan where I had lived for 10 years, to Tokyo, as of a few months ago. This quintupled our rent on an ongoing basis and required substantial expenses to set up our new household, hence motivating me to do a quick consulting engagement.

Why move? The long and short of it: Ruriko (my wife) does not love Ogaki the way I love Ogaki, and wanted a change. That’s a good enough reason to do anything, but as it happened I was also feeling socially isolated in Ogaki (aside from Keith, I have no friends within the city anymore, and few enough close acquaintances), and I was ready to start a new chapter, too.

Why move to Tokyo? I wasn’t ready to uproot the family to the US, so looking around Japan, Tokyo is pretty clearly the best option for us. Ruriko has friends and family there (not immediate family, but I expect that to change), the QOL according to things she cares about is quite high there, and Tokyo has a rather substantial tech community.

I thought Tokyo was going to be… tolerable. I’m rapidly falling in love with it, or at least the little slice of it I’ve found in Nakameguro (our neighborhood). Jason Winder, a close friend of mine, runs a company in that neighborhood. We met when he started doing HN meetups several years ago — I used to go out 3 hours on the train once a month just to talk software with anyone — and, as we became friends and I ended up spending a bit more time in the neighborhood, came to think it represented a nice compromise of the advantages of big city living but with a friendly atmosphere.

I remember thinking years ago that Tokyo was just wall-to-wall overcrowded alienating hell, like the subways. The subways are indeed wall-to-wall overcrowded alienating hell, at least during rush-hour. I have solved this by making sure to sleep in until rush-hour is over and joined a coworking space within walking distance, so that I’m only on the subway twice a week rather than twice a day.

It has been great businesswise — in particular, Americans from Silicon Valley invariably hit Tokyo when they come to Japan but don’t come to Ogaki, so just by being there I get to meet with a lot of interesting folks who I would otherwise have to fly over the ocean to see. (I also hope to get a bit involved with the Japanese startup community, but have been rather busy lately.)

Productized Consulting

In addition to the blog (you’re on it), podcast with my co-host Keith Perhac, and occasional essay delivered via email, I have also made a few paid products which help software companies market and sell their software.

They include a book on conversion optimization, a video course on lifecycle email marketing, and occasional one-off training events on email, copywriting, productizing one’s own consulting services, and the like. I didn’t actually do any paid training events in 2014.

I have been working for the past year on a video course to teach software companies how to do conversion rate optimization for their websites and products. It has been, frankly, a long, slow nightmare of a project.

I originally opened pre-orders for it last year in December and anticipated delivering it by the end of January. That didn’t happen. The slip date shipped repeatedly [editor’s note: that spelling mistake was unintentional but I like it so much I’m leaving it in].

I accomplished partial delivery of the course in summer — it had been sold on a three tier model, with the first tier having access only to canned videos, the second additionally getting personalized advice about their websites in a group discussion format, and the third getting a mini-consultation privately. To apologize for the delay, I bumped everyone to the tier one higher than they had paid for, and then delivered the non-canned portion. This required a few weeks of scrambling to do mini-consults and give a few dozen companies conversion advice, but it was the right thing to do, and it kept most of the customers happy.

I suppose it is worth saying why delivering that was comparatively easy and delivering the course has been comparatively hard. Partially, expectations in terms of production quality for live events are much lower than they are for video, and I wanted this course to be produced much better than the last one I did (which was me talking into a webcam). The other factor is that there is a difference between doing and teaching, and (contrary to the old saw) teaching is actually sometimes harder than doing.

I have substantial experience with doing conversion optimization work and, shown a company’s (often-unoptimized) home page, trial signup funnel, and pricing page, the ideas flow really freely. That’s easy for me and I’m very, very good at it. What I am not an expert at is making other people good at it, too. Curriculum development, collateral (slides & etc), and actually shooting the course has taken far, far more time than I anticipated, and I’ve thrown out quite a bit of work because, after seeing the final product, it didn’t hit my internal quality bar. (Which is set rather high for this, partly in reaction to it being late and partly because I am “the A/B testing guy” and I want to make this some of the best work in my career thus far.)

Every time I get in touch with folks about this, I offer refunds for those folks who (quite reasonably) feel inconvenienced by continuing to wait on the course. Even so, I feel awful about it having taken this long. That has been one of my main stressors this year.

This has totally stalled my product development pipeline, as it were, for productized consulting. I had expected last year to do a few one-off training events again, because people were thrilled with them last year and the model very clearly works. I wouldn’t feel right breaking time off the course’s schedule to build, launch, and deliver those training activities, though, so nothing on that front has happened this year.

Productized Consulting Stats

Sales (Hacking Lifecycle Emails): $9,443

Pre-sales (Software Conversion Optimization): $2,988

Refunded pre-sales: -$1,588

Royalties (Sell More Software): $469

Gross Sales Net of Refunds: $11,312

Productized Consulting: What Went Right

I did a wee bit of tweakage to my email list such that folks get my favorite 5ish essays delivered in a sensible sequence after they sign up for it. This lets me get some mostly passive sales for Hacking Lifecycle Emails, as one of the essays has a brief plug for it. (Yep, prior to 2014 there was no lifecycle email to sell my course on lifecycle email. The cobbler’s children have no shoes.)

Keith and I found a good podcast editor, which makes getting new episodes up less of an ordeal than it was previously. Hopefully after the situations in our personal lives get a little more stable, we’ll do even more of them. I think, off the top of my head, that we recorded more in 2014 than any year previous. (Some are still in the can.)

Productized Consulting: What Went Wrong

I won’t belabor the point, but not delivering the conversion optimization course this year is, far and away, my biggest regret for the year.

As a consequence of not getting that course launch and having it block other things in the pipeline, productized consulting fell fall short of my financial goals for that segment of the business.

I have not written as much as I’d have liked to this year.

Some days I feel like I have a few mana pools of creative energy — one for programming, one for writing/speaking/podcasting, one for generic business stuff, etc. As a consequence of stress and this course hanging around my neck, the mana pool for writing has been bone dry for most of this year. On those few occasions where I’ve had enough left over to cast the spell of 10,000 Word Blog Post, I’ve found myself with nothing new to write about.

This is irrational, and I know it is irrational. What I should do is continue to write on topics that I’ve covered or work on in the past, because that provides incremental value to folks who like reading my work. However, I always use the burst of inspiration which covers conquering fun new challenges to fuel writing about those challenges, so when I have no fun new challenges being conquered, my writing cadence falls off a freaking cliff.

I’ve only published three essays to my newsletter this year, where I try to do it bi-weekly and I’m embarrassed when it is less than monthly. I don’t really love blog posts anymore as an expressive medium, and only do it when I have something which should go to a wider audience than my usual mailing list (like, say, a 10k word brain dump of everything I know about doing business in Japan).

Business Administration

I changed the way we do bookkeeping this year. Previously, I used homegrown bookkeeping software built into the Bingo Card Creator website to do my books. I then had my VA do them, by periodically dumping hundreds of pages of transactions from my credit card statements, emailing them over, and having her categorize them for me.

This was a poor use of her time. It is more important that customers get useful, friendly responses in a timely fashion than the bookkeeping get done on any sort of schedule. My VA did not particularly enjoy the bookkeeping work, which requires a certain level of obsessive-compulsive attention to detail (one reason why I am bad at it), and the process routinely produced errors. Occasionally, they were errors which — had I not caught them — would have materially affected our tax liability. If you make a one-digit error on the date in a single-entry bookkeeping system and file a $5,000 hotel stay in the wrong year, that costs me thousands in additional taxes.

As a result of this, collaborating with my VA on bookkeeping consumed an excessive amount of time relative to the value we were getting out of it. I was weakly attached to the notion of continuing automated expense transparency on the BCC website, but not at the expense of additional stress this year. So I looked for a better solution.

Enter Bench. They’re basically Bookkeeping as a Service, where an actual, honest-to-God human bookkeeper manages your books for you using algorithms as a lever rather than as a substitution for their work and expertise. (I previously used a few solutions which are designed to automate the process entirely, but they produced books which required so much manual correcting on my part that they were worse than having no books at all.)

Bench is structurally a simple app. They use Yodlee (presumably) to slurp transactions out of my bank accounts. I upload statements for those accounts where that is impossible, and receipts for those transactions which need them for substantiation purposes (receipts for hotel stays for business travel, etc). Graydon the bookkeeper does the books for me. The site has an interface for passing messages to them and annotating individual transactions with a note, like “That transfer to a German tech company wasn’t a distribution to an owner of the LLC — easy mistake to make since all my wires to Japan are — it was actually for a software license.” Graydon then goes in and recategorized as required.

It runs $125 a month at my scale and is worth every penny and then some. I’m thrilled.

Expenses (total): $74,913.90 (plus any transactions which are “in flight” and not entered yet, so probably $80k by the end of the year)

(I’d be remiss if I didn’t mention that, while that number is comparable to the one I report every year, it doesn’t include our expenses paid in Japan. Those are mostly immaterial with regards to clear business expenses — a ream of copy paper, yay — but Japanese tax law also lets me expense a substantial fraction of e.g. our rent and utilities, so we do.)

Major highlights:

People (accountant, VA, sales rep): ~$20k
SaaS: ~$15k
Hosting & Domains: ~$10k
Advertising: ~$7k
Twilio: ~$6.5k <— Largest single vendor after finally surpassing Google, which makes me happy, as I’m their biggest fan
RailsLTS: ~$5.5k
Credit card processing (Stripe/Paypal/etc): $4k
Macbook Pro: $3k

I finally joined the vast Mac conspiracy. Darn all y’all for being right. It is a much, much more productive environment than my old Dell, even considering the amount of time I’ve spent banging my head on the learning curve.

Goals for 2015

Bingo Card Creator

Retool CS processes such that customers get responses to their questions in a timely fashion, even when they have questions which (at present) require tier-two support.
Either continue presiding over BCC’s long twilight or sell it to someone who can give it the level of attention it needs.

Appointment Reminder

I’m shooting for $15k MRR on the publicly available plans. That’s slightly more than double what we’re doing right now, but I think it is doable with the assistance of my sales rep plus me actively working on marketing for a change.
We’ve historically sold HIPAA-compliant services on a very limited basis. I’m hoping to release HIPAA-compliant services sold on a medium-touch model, now that I have a very good understanding of the process of providing that in a compliant fashion and (knock on wood) actually closing the deals. This will probably be in the $500 to $1,000 a month range. If we could hit, oh, $15k MRR on those accounts as well, that would be nice, but that might be a bit aggressive.
The enterprise pipeline is, at the moment, close to bone dry. I should restock that, hopefully with our sales rep taking a bit of the workload. I have no clue how to forecast from “bone dry”, so let’s pick “break six figures” as a nice round number to shoot for.
I’d still love to earn that “Cashed a six figure check” merit badge but I’m not wedded to it.
Do one or two ambitious development projects on the product side of the house, if I have the time.

Productized Consulting

Ship the Software Conversion Optimization course as early as possible given my non-business commitments.
I’m hoping that, with the course out, I can do some more experiments in form factor this year. For example, I’ve been really wanting to write a book (from scratch this time) for a while, and maybe this is the year.
Numerically, I’m shooting for ~$80k in sales when I launch the course, and then hope to do about $150k in this segment for the year.

Big News

I have one potentially big project in the offing, but it isn’t public knowledge yet. Suffice it to say it could materially impact the above by a lot if it comes to pass. More about that in the usual places as it gets closer to happening.

I kept the best news for the end. Ruriko and I were blessed by the birth of our daughter, Lillian. I love her to pieces. I’m still working on the balancing act of being a husband and father while also running the business, but I’ve got the best co-founder in the world to figure out the challenges with.

Doing Business In Japan

Posted on November 7, 2014 by Patrick in Japanese

(For readers for whom Japanese is easier than English / 日本語が読みやすい方：上杉周作さんが本投稿を日本語に翻訳してくださいました。ビジネス・イン・ジャパンをご参照ください。)

I’ve been in Japan for ten years now and often get asked about how business works here, sometimes by folks in the industry wondering about the Japanese startup culture, sometimes by folks wishing to sell their software in Japan, and sometimes by folks who are just curious. Keith and I have discussed this on the podcast before, but I thought I’d write a bit about my take on it.

Disclaimer: Some of this is going to be colored by my own experiences.

The brief version: white male American (which occasionally matters — see below), came to Japan right out of college in 2004. I have spent my entire professional life here. I’ve worked in two traditionally-managed Japanese organizations (one governmental body and one megacorp), run my own business full-time since 2010, and have modest professional experience with Japanese startups (both run by Japanese folks and by foreigners).

I’m fluent in Japanese to all practical purposes.

Disclaimer the second: I’m going to attempt to avoid essentializing Japan too much, as (like the US) it is a big country with a broad range of human experience in it. Essentialization is a persistent problem with most writing about foreign cultures. The best antidote for it ever with regards to Japan is an out-of-print book Making Common Sense of Japan.

That said, there may be some generalization and/or exaggeration for dramatic effect. Mea maxima culpa.

The Company Is Father. The Company Is Mother.

The slice of contemporary Japanese life of keenest interest to you is dominated by one particular relationship: that of the Japanese salaryman to his employer. If you understand this relationship, it is almost a Rosetta stone. You’ll immediately be able to predict true things about the world like “Japanese startups probably have huge difficulties in hiring.” (About which, more later.)

A salaryman (transliterated from the Japanese which is itself borrowed from English), more formally a “full-time company employee” (正社員), is the local equivalent of a W-2 employee in America. This is roughly 1/3rd of the labor force in Japan, but it has outsized societal impact.

Traditionally, salarymen (and they are, by the way, mostly men) are hired into a particular company late in university and stay at that company or its affiliates until they retire.

There are other workers at Japanese companies — contract employees, who can be (and are) let go at will, or young ladies on the “pink collar” track who are encouraged tacitly or explicitly to quit to get married or raise children — but the salaryman/employer relationship is the beating heart of the high-productivity Japanese private sector. (The Japanese economy is roughly 1/3rd the public sector, 1/3rd low-productivity firms like restaurants or traditional craftsmen, and 1/3rd high-productivity household-name megacorps. Salarymen are mostly present in the last one, which happens to dovetail with your professional interests.)

The salaryman/employer relationship is best characterized as “You swear yourself to us, body and soul, and in return we will isolate you from all risks.”

The employee hereby promises the company: Your first obligation, in all things, will be to your company. You will work incredibly hard (90+ hour weeks barely even occasion comment) on their behalf. The company can ask you to head to a foreign office for three years without your wife and child beginning tomorrow, and you will be expected to say “Sure thing, when does my flight leave?” or accept that your career advancement is functionally over.

The company will mold you to their exacting specifications to do whatever form of service they require. You will happily comply, in this as in all things. For example, if your company needs a Java-speaking systems engineer and you have a degree in Art History, this is not a problem because you can be fixed. Sure it might take ten years and only work on a quarter of the new hires but that’s why we employ you for 45 years and hire a hundred at once! (What of the Art History majors who don’t successfully learn how to edit XML files or architect web applications? Well, they’ll be promoted in lockstep with the rest of their cohort, but tasks which actually require programming with magically route around them, and they’ll end up doing things like leading 6 hour planning meetings and producing spreadsheets. Lots and lots of spreadsheets.)

The company hereby promises the employee: Your company will provide structure and purpose for your life. You will be clothed in the company colors, literally and figuratively. You will be respected, inside and outside the company, as befits an employee of ours. You will be provided with benefits perfectly calibrated to allow you and your family to lead a middle-class Japanese life. Your children will go to as good schools as they test into. Your wife will be able to afford an annual trip to Hawaii with her girlfriends.

You probably won’t attend that trip because, as a salaryman, you wouldn’t want to leave your coworkers in the lurch by taking extended vacations. Your company officially allows you between 12 and 18 combined vacation/sick days a year, but salarymen generally try to hold themselves to about 5, taken in single-day increments. Your company loves you and wants you to be happy, though, so they’ll suggest two days for your honeymoon, two if a parent passes away, and one if your wife passes away. You can take that Saturday off, too, because the company is generous. There, that’s like four full days — five, if you time it with a public holiday.

There exist companies which don’t require their salarymen to work Saturdays. That is considered almost decadent for salarymen — the more typical schedules are either “2 Saturdays a month off” or “every Sunday off!” Even if you’re not required to work Saturdays, if one’s projects or the company’s situation requires you to work Saturdays, you work Saturdays. See also, Sundays.

Salarymen work large amounts of overtime, although much of it is for appearance’s sake rather than because it actually accomplishes more productive work. Depending on one’s company, this overtime may be compensated or “service overtime” — “service” in Japanese means “thrown in for free in the hopes of gaining one’s further custom”, so your favorite restaurant might throw in a “service” desert once in a while or you might do 8 hours of “service” overtime six nights a week for 15 years.

At those companies which actually pay for overtime (not uncommon, even for professional salaried employees, even for those who would characteristically be exempt in the US), there are generally multiple rates. I got time and a quarter between 6:30 and 9:30 AM, time and a half until midnight, and time and three quarters after 1:00 AM. That last bracket was there for a reason.

It is highly unlikely that anyone will ever tell you “We need you here until 3 AM. Yeah, sorry, tell you what, take off early at 9 PM tomorrow.” The company is just steeped in an environment which will make this decision seem like the most natural thing in the world to you. To leave early would let your team down. To make a habit of it would cause people to question your commitment to the company and to the important work that the company does. It will become so natural to work salaryman hours that you’ll teach their necessity to junior employees who you mentor, probably without you even realizing you’re doing it.

Don’t have a wife? You might quite reasonably think “I don’t have time to even think about that.” Don’t worry — the company will fix your social calendar for you. It is socially mandatory that your boss, in fulfillment of his duties to you, sees that you are set up with a young lady appropriate to your station. He is likely to attempt to do this first by matching you with a young lady in your office. There are, at all times, a number of unattached young ladies in your office. Most of them choose to quit right about when they get married or have children.

You might imagine that you heard a supervisor tell a young lady in the office “Hey, you’re 30 and aging out of the marriage market, plus I hear you’re dating someone who is not one of my employees, so you might want to think about moving on soon.”, but that would be radioactively illegal, since Japanese employment discrimination laws are approximately equivalent to those in the US. A first-rate Japanese company would certainly never do anything illegal, and a proper Japanese salaryman would never bring his company into disrepute by saying obviously untrue things like the company is systematically engaged in illegal practices. So your ears must be deceiving you. Pesky ears.

The company is your public life. Have an issue with your landlord? The company will handle it, in those cases where the company is not your landlord. (“So let me get this straight: we’re going to pay our employees, and then they’re going to immediately hand 25% of their salary over to an apartment? Doesn’t this suggest an obvious inefficiency? We could just buy a building and house dozens of employees there — lower transaction costs plus economies of scale.” Many Japanese companies have done this math already, and company dorms are quite common, particularly for young, single employees.)

Need to file paperwork with City Hall? Someone from HR can do it for you. Salarymen don’t file tax returns — the National Tax Agency and HR work out 100% of the paperwork on their behalves. Insurance? Handled. Pension? You’re sorted. Immigration, for those very rare salarymen who are also foreigners? Your CEO has written a letter to the Minister of Justice for inclusion with the paperwork that HR has put together, and you won’t even have to carry it into the office.

The company is your private life. All friends you’ve made since your school days almost by definition work for your company, because you spend substantially every waking hour officially at work or at quote leisure unquote with people from work. When you get off work rather early, like 7:30 PM, you’ll be strongly encouraged to go out to dinner and/or drinks with bosses, coworkers, and/or business acquaintances. (The company is buying, either directly via an expense account or indirectly via a “The most senior person pays and their salary has been precisely calibrated to accommodate this” cultural norm.) Like karaoke and golf? Wonderful, you’ll have an excellent time with the other salarymen, who have either perfected the skill of liking karaoke and golf or seeming to like karaoke and golf when invited out by colleagues.

We’ve mentioned that your company considers it its responsibility to see you appropriately married. That is not the sole way in which the company may try to arrange companionship, but let’s table that issue for the moment. When you get married, your boss will give the longest speech at your wedding, praising your diligence on that last project and bright future with the firm. Perhaps eight or so coworkers will show up. They’ll also take up a collection for you if a parent should pass away, come visit if you’re hospitalized, and offer to intercede if you should have trouble with your wife or children. You are, after all, one of the family.

Lifetime employment is somewhat on the outs in the last 20 years or so, but it is still a reasonably achievable thing in 2014, and an expectation that many Japanese folks quite literally structure their entire lives around. An offer of employment as a salaryman, while theoretically instantiated as a e.g. three year employment contract with “renewal upon mutual agreement”, is (practically speaking) a promise that one will be promoted on a defined schedule for one’s entire working career.

One’s actual salary as a salaryman is generally rather low — about $100 per year of age per month, as an engineer in Nagoya (set by a particular monopsonistic engineering employer near Nagoya). In Tokyo, my sense of the market is that, as an intermediate engineer in his early thirties, I’d probably command somewhere between $30k and $60k. (In Silicon Valley, the going rate would be somewhere between $120k and $160k and increasing rapidly.)

The stability is superior to even tenured professors or civil servants in the United States, though. Eliminating your position will result in, at worst, your transfer into a division optimized to shame you into quitting. Incompetence at one’s job bordering on criminal typically results in one’s next promotion being to a division which can’t impact shipping schedules and has few sharp objects lying around.

You owe your company one more thing: Don’t. Ever. Quit. Salarymen are very rarely hired mid-career — you start at a company directly after undergrad and stay there forever. If you somehow manage to separate from that company, you are damaged goods. You will, in all probability, never be offered a salaryman position again. You may be offered professional work as a contract employee, but this has worse material terms, second degree social status, and no job security.

You may think I’m exaggerating. Not so much. I spent about three years in the salt mines and could go on this topic for hours. You can also read about this, to exhaustion, in most books about modern Japanese culture. (Single favorite recommendation for foreigners: An Introduction To Japanese Society, Sugimoto. Salarymen rate only a chapter or two — the book is sweeping in breadth and does the best job I’ve ever seen at adequately representing the diversity of life here for a foreign audience.)

Salaryman loyalty compels me to mention that my company was scrupulously fair to me, in a fashion which is not automatic among Japanese megacorps with regards to their foreign employees. I am sincerely indebted to them for that.

Startups In Japan Are Considered Off-The-Charts Risky

As a young professional, you’re defined by your relationship with your employer, and everyone else expects to interface with your employer to do business with you. If your employer is yourself, or a company no one has heard of, this has numerous negative impacts on your life as compared to your employer being a member of the elite fraternity of Japanese megacorps.

Example: Housing. When I started my own company, I was living in an apartment that I had first rented as an employee of a megacorp. The entirety of the credit investigation was me presenting my business card to them. Possessing it implies both sterling moral character, stable finances, and a responsible party to intercede with should there ever be an issue with me as a tenant. (Japanese landlords and lenders will, as a matter of policy, escalate any disagreement with you to your boss, as the social opprobrium you’ll suffer will get you to quickly cave.)

The apartment required a guarantor (co-signer on the lease who is responsible for rent and damages if you fail to comply with your obligations), as many Japanese apartments do. Most young Japanese professionals use their parents. My parents were ineligible due to being, well, Americans living in America. I mentioned this fact at my office, whereupon my boss’ boss immediately said “Tanaka, he’s your subordinate. Take care of it.”, and my boss immediately called the landlord and said “This is Patrick’s superior at $COMPANY. We request that you send over Patrick’s guarantor paperwork. I assume that your company will find me acceptable as guarantor. Thank you in advance for your continued service to $COMPANY and our employees.”

When I quit my day job, I called the landlord to apprise them of this fact, as I was required to by the terms of the lease. At the time, I had somewhere north of $50k a year of income, and rent of $400 a month.

I was immediately asked to leave the apartment “at your first available convenience” because “self-employed” is about one half-step above “homeless vagabond” in terms of social esteem in Japan. No amount of explaining “I am not a risk of non-payment — I have lived here without incident for years and my income has increased as a result of quitting the day job” would mollify my landlord.

Want to buy a house? Japan theoretically has credit bureaus but credit scoring has not replaced manual underwriting to anywhere near the degree it has in the US, so you’ll find it very difficult to purchase a house without “stable employment”, by which we mean “being a salaryman.” (Or, equivalently for this purpose, a civil servant.)

Example: Relationships. Should you want to get married in Japan, you’ll find that most young ladies, and virtually all young ladies’ parents, prefer the material stability that comes from salarymen. My wife Ruriko was able to overlook my damaged professional prospects, despite the prevailing opinion among her friends being that I was unemployed. (The hypothesis was advanced, more than once, that as a foreigner who routinely travels abroad, speaks Spanish, and has money without any evidence of gainful employment, I was probably a drug dealer. I wish I were joking.)

When I met her mother for the first time, I brought my resume and tax returns. Her mother was not 100% keen on the match when we started dating, as a combination of “foreigner” and “not gainfully employed” suggested that I was not exactly marriage material, but I eventually won her over.

This is a real issue for many Japanese folks who want to become involved with startups, either as a founder or as an employee.

When I was spending my nights and weekends on Bingo Card Creator, my then-coworker (one of the two best engineers I’ve ever had the privilege of working with) built Github for SVN as a side project. He was hours away from launching it, then had one conversation with his wife about it. She was of the opinion that the side project might induce him to do something crazy, like leaving his job, or induce the company to do something relatively sane, like firing him for stealing company property (to whit, the brain cycles of a salaryman). That ended that.

(This company was actually relatively progressive with regards to letting employees have extracurricular interests like OSS projects or, in my case, BCC, but my coworker’s wife’s assumption about market terms remains quite reasonable.)

One of the most common topics I have with young Japanese would-be entrepreneurs isn’t about how to get investment or how to find customers. Many of them want my advice on how to sell the idea to their parents or girlfriends. (Would-be entrepreneur ladies have a different set of challenges, but I run into them rather less frequently and they almost never ask me for dating advice.)

My general advice for Japanese folks trying to make their loved ones happy is “Tell them that, in tech, a lot of the companies you’d want to work for are full of inscrutable foreigners who have insane decision-making processes. Take Google, for example. Chock full of Americans. Man, Americans, right? Anyhow, Google has this crazy notion that you should demonstrate capability through personal projects prior to them hiring you. So really, the startup isn’t a startup, per se, it is an extended interview for the job at Google. After you get hired by Google, of course, you’ll be a salaryman at Google. Despite being chock full of Americans, Google gets salarymen: look how they exercise benign paternalistic control over every aspect of their employees’ lives. Almost as good as Sony, twice the pay!”

(Any Googlers reading this? Howdy! Don’t worry, as an ex-salaryman, I am absolutely sincere in saying that I understand the attraction and also understand why you might object to that phrasing. In my salaryman days, I would have objected to it, too. Seen in the clarity of hindsight, I plead temporary insanity exacerbated by extraordinarily effective social conditioning designed by very, very smart people. If you’re happy, though, good for you. I know genuinely happy salarymen, too, and wouldn’t think of attempting to stamp on their joy even though I have some very pointed observations to make about their organizational culture.)

Hiring In Japan Requires Exploiting Flaws In Salarymandom

In the US, startups have to come up with a reason for engineers to join them over AmaGooBookSoft. In Japan, the competition is the salaryman ecosystem, and it is a jealous god indeed, in that if you ever take a walk on the wild side you’ll never get back into respectable society again.

How to work around this? Well, you start by hiring around the edges for Japanese society. Most of my Japanese startup buddies are very good, by necessity, at hiring people who the job market has not valued appropriately yet. Since most highly-educated, career-oriented Japanese folks aspire to jobs as salarymen or similar work in the public sector, most Japanese startups have to hire folks who don’t fit that mold.

Some examples include:

Women: I may have mentioned alluded to the fact that traditionally managed Japanese companies are pathological with regards to their treatment of women. There’s an entire academic field devoted to that topic. Anyhow, this is an opportunity for startups here: since college-educated women are tremendously underused by the formal labor market, startups can attract them preferentially.

Foreigners: It is fairly difficult (not impossible, but difficult) for foreigners to arrange to get hired as salarymen. If you’re obviously foreign, no matter what you do, you’ll be constantly assumed to be an English teacher, since that is the one value-producing occupation that Japanese society conveniently slots you in. (Oh boy, does this get old.) Given limited ability to break into The System, startups are a fairly reasonable choice of occupation if you want to live in Japan for some reason.

”Misfits”[+]: Salarymandom isn’t all roses for Japanese men, either. Some don’t have the right degree. Some burned out. Some are unable to subordinate to the extent the jobs require. Some spent more than a few years abroad and are seen as being potentially “too foreign-ized to work in a Japanese company.” Some were simply born in the wrong year and thus in college during the wrong economy to get hired, which includes lots of young men in my generation. They are thus frozen out of salarymanhood, effectively for life.

([+] A Japanese hiring manager once told me, beaming, “I look for misfits.” I apologize in advance for the following sentence, but I will quote it accurately, because it is instructive: “Otaku, Koreans, foreigners, dropouts, I’ll hire anybody who can do the work. You’re bargains.” In an ideal world there would be no racists, but in the less than ideal world that you may find yourself living in, at least hope to run into ruthlessly capitalist racists, because that’s something you can work with.)

Good news for employers: Japanese employees are, comparatively speaking, cheap, and there is only a very small premium for engineers relative to similarly credentialed employees.

I heard a great line about this once, and unfortunately I cannot remember the source: “Most people want to become wealthy so they can consume social status. Japanese employers believe this is inefficient, and simply award social status directly.” The best employees aren’t compensated with large option grants or eye popping bonuses — they’re simply anointed as “princes”, given their pick of projects to work on, receive plum assignments, and get their status acknowledged (in ways great and small) by the other employees.

$30k is a reasonable wage for an engineer in Japan virtually anywhere but Tokyo. In Tokyo, average mid-career wages in engineering are roughly $50k (5 million yen a year). (Pay is generally higher in the financial industry and in foreign-owned corporations, which are generally in the financial industry.)

Non-salary costs of employment are roughly in-line with what they are in the US — budget about 25~50% extra. They include health insurance, pensions (defined-benefit pensions are compulsory but the required levels are rather low), and some I-can’t-believe-its-not-salary disbursements such as a commuting allowance, doesn’t-live-on-company-property allowance, has-wife-and-kids allowance, and what have you. Some of these are non-taxable, which means you should characterize as little money as “salary” and as much as those allowances as possible. Ask your accountant if you’re curious.

I’ve occasionally been asked “So what do you think of Japanese engineers?” In general, I think the field here is as wide as it is anywhere else. Two of the five most talented engineers I’ve ever had the privilege of working with — whom I’d stake against anyone in the Googleplex — are Japanese.

The larger hiring market includes, just like the US, many people who cannot be trusted to FizzBuzz. Young engineers are not, in traditionally managed Japanese organizations, given authority or responsibility, with the notion that from the time they’re hired to their early thirties they’re mostly just supposed to be learning the Proper Way Of Doing Things At Our Company, so expectations for productivity are very low. (I know some folks might find it difficult to reconcile “90 hour weeks” and “very low productivity.” Suffice it to say “Six hour planning meeting by five people to discuss whether the copy on a button should be ’Sign Up’ or ‘Sign Up For Newsletter.’”)

The state of the “modern web” in Japan

Complicating the issue for the purposes of startup hiring: Japanese engineers are largely employed by Japanese megacorps, and Japanese megacorps don’t really produce wonderful modern web software. Metropolitan Nagoya has literally thousands of people who can write assembly code that you’d literally trust your life to (you have before and will again, unless your sole method of transportation is bicycles), and probably only a few dozen who you’d want working on a web application. Tokyo has more, but still far too few.

In general, with exceptions, I’d rate Japan as about 5~10 years behind the skill curve relative to the US when it comes to web/mobile development. When I left my last day job in 2010, executing Javascript in the client side of a B2B application demonstrated very impressive technical acumen and my company was worried about losing their connection to spiffy, innovative American engineering techniques. No, not joking, really.

While raw programming ability might not be highly valued at many Japanese companies, and engineers are often not in positions of authority, there is nonetheless a commitment to excellence in the practice of engineering. I am an enormously better engineer for having had three years to learn under the more senior engineers at my former employer. We had binders upon binders full of checklists for doing things like e.g. server maintenance, and despite how chafing the process-for-the-sake-of-process sometimes felt, I stole much of it for running my own company. (For example, one simple rule is “One is not allowed to execute commands on production which one has not written into a procedural document, executed on the staging environment, and recorded the expected output of each command into the procedural document, with a defined fallback plan to terminate the procedure if the results of the command do not match expectations.” This feels crazy to a lot of engineers who think “I’ll just SSH in and fix that in a jiffy” and yet that level of care radically reduces the number of self-inflicted outages you’ll have.)

UX, web design, A/B testing, and the like are similar to programming in this respect. Best-in-class Japanese web applications produced in 2014 asymptotically approach Facebook 1.0 in functionality. One reason is that the primary B2C Internet consumption device is the cell phone and, prior to the iPhone arriving, most Japanese sites were designed with the “needs to be consumable on a feature phone” requirement firmly in mind.

The story of Japan’s relation to cell phones is very interesting. It is pithily summarized as “Japan managed to produce the Galapagos finches of feature phones — diverse, specialized to the native environment, found nowhere else in the world, and totally at the mercy of invasive species.” They were truly amazing hardware for the time with, like most Japanese hardware, all software re-written from scratch for every model, often in assembly. Given that those constraints make it pretty difficult to even ship a clock app, and most of the phones shipped with web browsers (!) and fairly functional Javascript interpreters (!!), they can be forgiven for having terrible UXes. And they were, until Steve Jobs changed that overnight.

Incidentally: when the iPhone came out, many foreign commentators said it would never be a hit in Japan because Japan doesn’t trust foreign products. That was horsepuckey when they said it — the iPod already had a 70%+ share while competing with Sony/etc on their home turf — and hopefully is even more obviously horsepuckey now.

Access To Capital

Japan is a rich country with almost unfathomable amounts of capital available to deploy. Japanese monetary policy has made money virtually free for more than 10 years now.

At the same time, Japanese startups have an extraordinarily difficult time raising capital.

How can both of these be true? Well, imagine a pre-YCombinator Silicon Valley with the strength of the social graph dialed to eleven. Japanese VC firms largely fund established entrepreneurs who might be called intrapreneurs: they put in twenty or thirty years of service with a particular company or group of companies, have an idea for a product that they can sell that company, raise investment from that company’s closely affiliated VC firms, and then may eventually be acquired by that company.

If you’re a 22 year old with a gleam in your eye, Japanese VC firms are not exactly rushing to make your acquaintance. Come back after you’ve got the deep network which will allow you to sell your solution into one of the megacorps. Yep, Catch 22.

Angel investors? For a variety of reasons, they’re thin on the ground here. Japanese tech companies have not yet started doing wide distribution of stock options like American tech companies do. When Google/Facebook/Groupon/etc IPOed, each of those events created hundreds to thousands of people who suddenly met the accredited investor standard, had a great deal of money to spend, and were interested in technology. By comparison, IPOs in Japan are exceptionally rare and the equity is typically centralized among investors and management. This results in relatively fewer people who can write $25k checks.

Angels in Silicon Valley have evolved a certain level of professionalization with regards to practices which is wildly not the case in the rest of the United States. These practices are actively promulgated by (de-facto) consumers of the angels’ services, such as YC and 500 Startups.

Japan is not quite there yet. If you were, hypothetically, to spend a few weeks pitching a promising startup to well-regarded angels in Silicon Valley, you would hear very few terms which shocked the conscience. If you were, hypothetically, to spend a few weeks pitching a promising startup in Tokyo… well, a plane ticket to San Francisco might be a very reasonable business expense, we’ll put it that way.

Valuations in Japan are, by Valley standards, absolutely ridiculously low. I am constrained here from giving you many anecdotes because that would be socially embarrassing for friends, so instead, can I tell you an anecdote from St. Louis? Slicehost was once told by an angel investor that the investor would co-sign a $250,000 loan in return for 10% of the company. This is after they had an enormously quickly growing hosting company. In Silicon Valley, this results in millions getting thrown at you at a valuation in the tens of millions. In Tokyo, the strangest thing about the Slicehost anecdote would be “Why’d they need $250k? Couldn’t they have gotten by with $200k? Man, St. Louis must be made out of money.”

Debt financing? Hah, you’re funny. If you’re attempting to open a hair salon, you can get, say, $0.8 million or so collateralized by the real estate, and use some portion of that for working capital. Software firms, on the other hand, are not ideally suited to the standards of underwriting departments here. (My bank, in consideration of my decade of patronage, spotless payment record, and outstanding character references, generously approved a $3,000 credit line for my business.)

Selling To Japanese Companies

Do you enjoy enterprise sales, but think it includes excessive focus on the product and not enough wining, dining, and corporate politics? Then does Japan have a deal for you.

Low-touch software sales is relatively popular in the US. (“Low-touch sales” is the Basecamp model, where a compelling website, free trial, onboarding experience, email marketing, etc generally sell prospects with only a minimum of personalized interaction with the company. “High-touch sales” is the Oracle model, where you spend a lot of time on individualized communication.) Many companies are quite successful at low-touch sales, and many more use the experience of having done low-touch sales successfully to start an enterprise sales operation.

The Japanese market virtually requires high-touch sales for selling software, including even low price-point software to SMBs. Decisions for small purchases for software (and a variety of other goods and services) are primarily made after face-to-face meetings with local sales reps. A great overview of the traditional process is here, and I cannot really elaborate on it more than “No, really, we really did have to take a distributor’s reps out to drinks to procure more MS Office licenses. No, really, the most formidable Japanese low-touch SaaS entrepreneur I know figured out how to sell SaaS door-to-door in Tokyo.”

The economics implied by this arrangement make Japan relatively more hospitable to enterprise software and relatively less hospitable to e.g. SMB software. (This is also a major reason why I, personally, don’t sell to the Japanese market. Given that I’m primarily limited by my own availability, selling to the US implies an order of magnitude or more more revenue per every hour invested.)

Maintaining a team of reps to do client visits (who can, quite literally, often drink their way through a $2k entertaining-prospects budget on a monthly basis… in a single evening if you don’t discourage that) costs quite a bit of money, but once you get into average contract values in the several hundred thousand to several million region (dollars), it works out to the ~20% that US enterprise sales operations expect, and the same factors that made adopting you difficult now makes it very difficult for competitors to steal your accounts.

Japan is a gigantic market for software, and the number two market worldwide for a lot of US firms. Prominent examples include Oracle, Salesforce, Microsoft (IIRC), etc etc.

Penetrating the Japanese market virtually requires either a local office (in Tokyo, because you’ll want to have in-person visits with your customers and, if they’re large Japanese corporations, odds are they are in Tokyo) or an arrangement with a Japanese distributor. In general, relationships between vendor, distributor, and ultimate customer can be fraught. If you’re coming to Japan, think long and hard about the distributor decision, as cutting them out of the loop is seen as unseemly behavior, but keeping them in the loop if they’re inefficient virtually dooms your chances here.

If you want to read more on this general subject, I recommend Venture Japan, whose take on sales operations here generally matches my experiences.

Do you want to sell Japanese companies consulting services, as opposed to products? Remember, you’re going to be compared with the price of domestic employees. They’re quite cheap, so you’re going to get quite a bit of price resistance.

The Personal Touch

Doing business with Japanese companies frequently resembles It’s A Wonderful Life. “Customer relationships” are not an empty phrase — many business relationships where one is approximately equivalent to a row in the database in the United States are, instead, expected to be relationships between two actual people.

This is occasionally exasperating, as a software person who doesn’t want to have to take someone drinking to sell a single SaaS account, but it is occasionally quite charming. Moving to Japan, particularly small-town Japan, was like visiting an old America that I had heard stories about but had never gotten the opportunity to experience.

For example, when I first came to Japan, I had no computer. I also had no money, because the plane ticket and setting up my household ate all of my savings. In America, this isn’t a barrier to getting a computer, because Dell will do a quick FICO score on you and then happily extend you $2,000 of trade credit.

Dell Japan, on the other hand, set me up with two phone calls with actual human underwriters at two Japanese financial institutions. Both had me fill out rather extensive forms (100+ questions — seriously). The first said “In view of your length of tenure at your employer and length of residence at your apartment, we don’t feel that your situation is stable enough to extend you credit.” The second said “Look, umm, officially, I am supposed to just tell you that we decline your business and wish you luck. Unofficially, the bank doesn’t extend foreigners credit, as a matter of policy. You’ll find that is quite common in Japan. I know, it is lamentable, but I figure that you’d be able to save yourself some time if you knew.”

So I gave up for a while, but mentioned to a coworker later that week that I really wanted a computer to be able to Skype home. He said “Come with me” and we left, in the middle of the work day, to visit a bank. It is a smaller regional bank in Gifu. I’ll elide naming it to avoid the following story being personally identifiable, but suffice it to say it is a very conservative institution.

My coworker got a credit card application and asked me to fill it in. I did so, but told him “Look, two Tokyo banks, which are presumably about as cosmopolitan as Japanese financial institutions get, just shot me down. One of them explicitly did so because I’m a foreigner. The chance of this middle-of-nowhere bank accepting a credit application is zero.”

“Don’t worry, I know the manager. Hey, Taro!”

Taro and my coworker had gone to school together.

“Patrick here just started working with us. He wants to buy a computer to call his parents, diligent son that he is, and needs a credit card to do it. Here’s his application. Make sure it doesn’t get lost in the shuffle, OK?”

Some weeks passed, and I assumed that I had been denied. Then there was a knock on my door early one Saturday morning.

It was bank manager Taro and an older gentleman who introduced himself as the Vice President for Risk Management of the bank. He promptly took over the conversation.

“You have to understand that we’re not one of those banks. We’re not some magical pot of money. Every yen we have is a farmer depositing against a bad harvest or a retiree’s pension, carefully husbanded over a lifetime. That is a sacred trust. We cannot lose their money. The bank has to be appropriately careful about who we lend that money to. Taro here tells me your trustworthy, so that is good. Even trustworthy young men sometimes make poor decisions. I need to know you won’t, so before I give this credit card, I have three questions for you.”

“Will you ever use this credit card to gamble?”

“No, sir.”

“Good. Will you ever use this credit card to buy alcohol?”

“No, sir.”

“Good. Will you ever give this credit card to a woman who is not your wife?”

“No, sir.”

“Good. Think darn hard before giving it to your wife, too. OK, you pass muster. Sign here.”

That was the first of a dozen stories which you wouldn’t believe actually happened about that bank. Taro correctly intuited when I started dating a young lady, and when we broke up, solely based on on my spending habits. He considered that part and parcel with looking out for my financial interests.

Taro stopped me from doing a wire transfer back to Bank of America to pay my student loans during the Lehman shock because Wachovia had gone into FDIC receivership that morning. I told Taro that I didn’t have an account at Wachovia. Taro said that he was aware of that, but that I used Lloyds’ remittance service to send wires, and Lloyds’ intermediary bank in the US was Wachovia, which might or might not be safe to have money in at the moment. I asked Taro how in God’s name does a banker in Ogaki, Japan happen to know what intermediary banks Lloyds uses in North America off the top of his head, and Taro said, and I quote, “There exists a customer of the bank who habitually makes USD wire transfers using Lloyds and, accordingly, it is my business to know this.”

Taro called me on March 12th, the day after the Touhoku earthquake, to say that he was concerned about my balance in the circumstances (I had cleared out my account to pay a tax assessment minutes before the quake) and, if I needed it, to come down to the bank and, quote, we’ll take care of you and worry about the numbers some other time, endquote.

Taro eventually retired from his position, and as part of making his rounds, gave me a warm introduction to the new bank manager. He made it a point to invite me out for coffee, so that he’d be able to put a face to Taro’s copious handwritten notes about my character. Some years after that, a new manager transferred in. I popped by with a congratulations-on-the-new-job gift, mildly surprising the staff, but it felt appropriate.

When I moved to Tokyo, I went to the regional bank’s sole Tokyo office, which exists to serve their large megacorp customers. They were quite shocked that I had an account with the bank (“Mister! Citibank is down the street! If you use our ATMs you’ll get charged extra!”), and even more shocked when I told them that I run a multinational software company through it. “Wouldn’t you get better services with Citibank or Mitsubishi?” The thought of switching never crossed my mind. Indeed, I can’t imagine anything that would convince me to switch. They don’t make numbers big enough to compensate for how much I trust my bank.

Was I a particularly large account to the bank? Nope. It’s the same passbook savings account a 17 year old gets to deposit their first wages into. For 8+ of my ten years in Japan, my balance there was below $2,000.

The bank is one anecdote, but I could tell you about the hair stylist who drops me a handwritten postcard after every appointment, the restaurant that I went to weekly that tried to cater my wedding for free, the glasses shop which invited me to come back for a (free) frame re-bending and cup of coffee any time I was in the neighborhood, etc etc.

Japanese customers, in both B2C and B2B relationships, expect a level of personalized, attentive service which is qualitatively different than that in the United States. Anomalously good sales reps in the US are frequently operating at table stakes or below in Japan.

On the plus side, after you’ve actually won the business and demonstrated capability to serve customers to these standards, Japanese customers are very loyal. This is true both qualitatively and quantitatively. I’m aware of a Japanese SaaS app which, despite being sold at low price points on a low-touch month-to-month model (all predictive of relatively high churn rates) has a churn rate which would be considered exemplary for an enterprise SaaS app sold with high-touch sales on an annual contract.

The Mechanics Of Getting Started

Japan has a reputation as being forbiddingly bureaucratic. I find that this depends strongly on what exactly you’re doing. In many respects, the actual mechanics of starting a business are quite easy.

I quit job on March 31st, took April 1st off, and went down to town hall to file paperwork on April 2nd. As an American, I expect dealing with city government to be a very painful experience. I was whisked between three departments staffed by knowledgable, efficient, mostly pleasant bureaucrats, and in less than 30 minutes walked out the door with health insurance, a public pension, and forms filed to reflect that I’d be filing as a self-employed person for taxes the following year.

Historically, Japan makes company formation rather more difficult than it is in the US — it costs a few thousand dollars (filing fees and legal advice, which you’ll need to complete the process) and requires that you have $30,000 of capital. This has changed a bit over the years, in response to feedback from Japanese entrepreneurs. Personally, though, having a supermajority of my customers be in the US makes having US entities equally useful as Japanese ones, so I just have US LLCs, which you can open with ~$500 and 30 minutes. (Japan’s closest equivalent is a “goudou kaisha”, which are substantially easier and less costly to form than traditional corporations. However, many Japanese entrepreneurs choose to go for the traditional corporation anyway, on the theory that it is likely to be perceived as more trustworthy.)

I’d estimate that I spend approximately 3~5 work days a year dealing with government requirements. In my business, the overwhelming majority of this time is spent on doing taxes. They’re approximately as burdensome as American taxes at my scale of business. One added hurdle: Japanese accountants are typically not conversant about the software industry and, since the intersection of Japanese tax law and software realities is not well settled, are often not tremendously capable of giving great advice about it.

Where does it get more difficult? As you get progressively more enmeshed with the Japanese bureaucratic state, the amount of time you’ll spend managing that relationship goes up rather drastically. Assuming you’re not in a regulated industry, like e.g. finance or healthcare, the thing which is most likely to bring you to government attention is hiring full-time employees. (If you’re in a highly regulated industry, may God have mercy on your soul — ask your competent legal advisors rather than me.)

Remember how societally important the employment relationship is? The Japanese government will expect you to discharge your responsibilities in that relationship, and this will generate enormous volumes of paperwork. Most of it is similar in character to running a business anywhere, but there is a lot of it. The government is impressively well-organized, but it is well-organized to accept your paper declarations in-person, and you’ll spend a lot of time acting as a transport layer for SQL queries between government offices.

I once was obligated to spend $2 to get a piece of paper telling Agency B that a particular number in Agency A’s possession was, in fact, accurately reflected on the paperwork I had earlier presented to Agency B. Agency A and B simply will not talk to each other about this. They have a protocol, and you need to walk the messages of that protocol between each of them, until they tell you you’re done. Usually, A and B are reasonably close to each other, so you’ll waste a minimum of travel time.

Japanese folks consider at-will employment to be an alien institution, much like you might be thinking about the salaryman system. (At-will employment is the common-in-many-US-states arrangement where employers and employees have the mutual right to terminate employment for virtually any reason.) If you hire full-time employees in Japan, you can only dismiss for cause, and the bar is relatively high.

Imagine having the following conversation with the relevant authority: “Incompetence at one’s job is only a reasonable cause for termination if you’ve dutifully discharged your duty to retrain the employee, documented several months of poor performance subsequent to the retraining, and explored options for other jobs they could do for you. After all, everyone starts out at incompetent, right? If we let any company just up and fire anyone merely for not being able to do their job, that would contravene the social purpose of employment.”

As you can imagine, this makes hiring for small companies even more difficult than it already as.

If one wants to terminate an employee for poor performance in Japan, the most efficient way is dealing with them like an unwanted New York or San Francisco tenant: offer to buy them out. If they don’t take the buyout and don’t wish to leave, your escalation options are limited and fairly high-stress.

Availability Of Non-Employee Business Inputs

Forgive me for stating the obvious, but people do ask, so: Japan is a highly developed industrialized nation where any business input you require is available, in quantity, if you’re prepared to pay for it.

Office real estate, particularly highly desirable office real estate in Tokyo, is more expensive than you might expect and modestly difficult to acquire. This is largely because, as a startup which is considered off-the-scale risky, you’re not a good candidate for a lease.

That said, if you’re willing to look around a bit, walk an extra 10 minutes from the closest train station, and go to a slightly less prestigious address, you can reasonably get a startup-capable office for $2,000 to $3,000 a month. A floater spot at a coworking spot in Tokyo runs about $300 to $400 a month. If you simply need a place to park your weary bones, Internet cafes are ubiquitous and charge about $4 an hour, although they’re typically not great environments to work from.

Internet connectivity to your office, place of residence, and phone is fast and cheap. Gigabit Internet runs about $50 or so a month and a generous data plan for an iPhone is about $50 to $100 a month. Internet connectivity in public spaces like e.g. (regular) cafes is much, much rarer than it is in the United States, although this is changing.

Do You Speak Japanese?

I’ve never had the experience of running a business in Japan without speaking Japanese. Doing so strikes me as playing life on hard mode. Japan theoretically has compulsory English education but, practically speaking, Japanese folks who can carry on a business-level conversation in English are rather thin on the ground.

This is true even in engineering. I know, I know, most technical documentation in software exists in English, and many foreign engineers are amazed that people who don’t possess a firm command of English can nonetheless be great engineers. All I can say is you’d be surprised by how many levels of fluency there are.

Although it is changing gradually, routine business dealings are generally conducted only in Japanese. Some businesses or government offices might have forms which are bilingual, but you’d be unwise to expect an answer to any question about the form.

Learning to speak, read, and write Japanese is enormously fun. So is starting a company. I recommend not combining the two. It typically takes at least two years of high-intensity study to be able to carry on a basic business conversation in Japanese (on the level of “Are you done with that? Not yet? Why not, and when do you expect to be done?”) and, unless you’re already coming from literate in Chinese, four-plus years until you’d have pretty good odds of understanding consequential business documents like e.g. a lease or contract.

Immigration

You can skip this if you’re Japanese.

Japan has a variety of categories of status of residence, which is a status quite similar to what the rest of the world calls visas. (A visa only lets you into the country here, but a status of residence allows you to stay and gives you privileges you might want during your stay, such as the privilege to work without being deported.)

Applications for most professional statuses of residence, such as engineer or humanities specialist, require sponsorship by a Japan-based organization. One’s likelihood of being approved depends in a fairly direct fashion on how much societal pull that organization has. If Toyota wants you to get a status of residence, you will be issued a status of residence. It gets somewhat more dicey with smaller companies, and the standard of review for documentation gets rather higher.

Status of residences follow employees, not jobs. If you are, for example, an engineer, you can quit your job as an engineer and get any other job without requiring a review of your immigration status… as long as that new job is in the same status of residence. This is very important.

The most common way to licitly start a business in Japan as a foreigner is to arrange to work with a Japan-based employer, get one’s status of residence through the employer, work for a time, quit, and then go into business for oneself in the same field. Although it isn’t exactly encouraged, the regulations for e.g. engineers don’t disallow you from being an engineer for a variety of customers including e.g. an entity you just happen to own. This means that you have from the time you quit to your next renewal of your status of residence to figure out how to either e.g. justify an entrepreneurship status of residence or fulfill the three prongs of your existing professional status of residence. (“Continued stable employment, at a Japanese organization, as demonstrated by contracts.”)

My hack around this, after quitting the day job, was to describe myself as an engineering consultant. I presented the immigration office with a stack of invoices and tax returns demonstrating that I made a stable living in software. (Much of it was from selling software, the key bit from their perspective was that at least one of my contracts had a Japanese company as a party to it.) After a bit of wrangling, they approved me to continue doing what I was already doing. (Word to the wise: this trick for self-sponsorship doesn’t technically speaking allow one to “run a company”, so I would avoid doing things which make it undeniable that one is in fact doing that, like e.g. hiring full-time Japanese employees.)

There exists a new status of residence for highly-skilled professionals which may make this somewhat easier than the business manager status of residence (which is achievable but has toothy requirements, like having 2+ full-time Japanese employees and at least ~$500k in capital).

Dealing with Immigration is, always and everywhere, high stress for immigrants. On the plus side, highly-educated Westerners are not the primary focus of xenophobia in the immigration agency. (Did I say xenophobia? Wait, sorry, I meant to say “zealous attention to their statutory duty to ‘forcibly expel undesirable foreigners from the nation.’”)

Permanent residence is an option, theoretically after 10 years of residence in Japan but, practically speaking, only about five if you’re married to a Japanese person. You’ll need to make a showing that your presence in Japan redounds to the benefit of Japanese society. It would be easier to do this if you were a salaryman, but successful entrepreneurs can also, in principle, pass the bar, depending on the mood of the examining clerk.

On Being A Foreigner In Japan

I customarily start speeches in the US with a fish-out-of-water story from over here, because they’re often funny. Some were less funny when I lived them, believe me.

Japan has a reputation for xenophobia. This is partially unfair: it is a large nation with more than 100 million people, who are not unanimous about anything which humans are not in general unanimous about. Many Japanese folks like foreigners, many more are indifferent, and attitudes in even less-enlightened portions of the country perceptibly improved in the 10 years I’ve been here.

That said: is racism a bigger problem in Japan than e.g. in the United States? Oh, yes. Unquestionably.

Let’s say you’re building a job-hunting site in the US and you notice, in the documentation, a boolean flag on the JobListing object titled nonWhitesAllowedToApply. It being 2014, several decades after relevant legislation has been passed, and you being at a Fortune 500 company which does not have a reputation as committing itself to clearly illegal courses of action, you might ask your boss “Hey boss, that nonWhitesAllowedToApply flag? Ahem, what the hell?”

You know what would not happen? Your boss telling you “Yeah, umm, I see how that could potentially be problematic, but the customer wanted it.”

Not that any Japanese company has ever instructed an employee to implement nonWhitesAllowedToApply, mind you. That would be silly.

Similarly, it is illegal in Japan to discriminate on the basis of race in e.g. housing. This bounced me out of approximately 40% of available apartments in Ogaki and a non-zero number in Tokyo, though I think I could have probably pulled strings around it. (In general, foreigners are foreigners in Japan, but certain foreigners are less foreign than others. Highly-paid well-educated articulate Western men with deep Japanese social networks are almost Japanese for the purposes of avoiding institutionalized discrimination like that. Almost.)

In general, I counsel picking one’s battles carefully with regards to this sort of thing. The formal channels for resolution are very slow, and you can quite easily win the battle (vindicated by the local equal opportunity commission; collect damages in the amount of a month’s salary) and lose the war (unable to work again in this country). I generally avoid it by picking associates carefully. This works in the 99.8% of time when I can pick who I deal with. (Sadly, while you can pick your bosses and landlords, police/immigration get to pick their foreigners, whether the foreigners like it or not.)

While not as consequential as discrimination which has actual professional/housing/etc impacts, Japan can occasionally be maddening with regards to certain expectations about foreigners. One of them is a widespread belief that foreigners don’t speak or read Japanese.

Imagine the following dialogue.

Me: “Good morning.”
Clerk at ward office: “WOW YOU SPEAK JAPANESE SO WELL.”
Me (ritual reply for compliment): “You are entirely too kind.”
Clerk: “So can you write Japanese, too?!”
Me: “I’m literate.”
Clerk: “So you could write, like, the name of this office?”
Me: “Yes. The hardest character in it is taught in third grade.”
Clerk: “Wow that is so amazing! I don’t think I’ve ever met a foreigner who could write Japanese.”
Me: “That’s funny. I don’t think I’ve ever met a Japanese person who has never met a foreigner who could not read Japanese. Except for three other clerks at this office this morning. And the last 2,000 times this happened.”

I did not say that final line because one does not go out of one’s way to antagonize people who are fundamentally of good will and also in a position of authority over one’s ability to continue living in one’s neighborhood. But believe me, I’ve wanted to say it about 2,000 times.

Imagine walking the tax return for your multinational software company into the local tax office and being asked, in a clerk’s best speaking-to-a-slow-child voice, “Who can I call mimes phone if I have a question shrugs about this paper points?”

“My name and contact information should be printed in the responsible corporate officer box, as per the usual.”

“But tax words are hard!”

“‘Straight-line calculation method for depreciation of an intellectual property asset’ was a really corker, I agree, but luckily your pamphlet ‘Easy-Peasy Taxes For The Self-Employed’ helpfully defines it on page 47. I’ll do my level best to comply with all of my requirements under the law, including looking up jargon in the dictionary, when necessary.”

It is occasionally to one’s advantage in business dealings to be a foreigner, largely because you can selectively code-switch between societal expectations for Japanese people and societal expectations for foreigners. I try to avoid abusing this, but it has occasionally been useful to e.g. object vociferously to something while pretending to be unaware that one is causing a scene.

Few things in life are worth fighting over. Fights that are worth fighting are usually worth winning.

For more prosaic examples of strategic use of foreign-ness, Venture Japan has some examples of deploying it for e.g. software sales. I’m aware of a few enterprise sales reps who have one quite well for themselves using those approaches, but wouldn’t personally endorse them.

Are Any Businesses Uniquely Helped Out By Being In Japan?

I very rarely feel like my professional opportunities are greatly circumscribed by being in Japan. Now is a wonderful time to be alive, and a combination of the Internet, a worldwide community of practice, and phones/plane flights mean that my business is virtually as viable in Tokyo as it would be in Toledo.

That said, candidly, my particular business does not benefit much from being here. (It would operate equally well from any reasonably fast Wifi, and since most of the customers are in the US, being closer to US time zones would mean a few less late nights for me.)

If you do sell to Japanese customers, it is obviously to your advantage to be here. Would I recommend that, given you have a choice to site your business anywhere in the world? Well, if you understand that your primary business challenge is going to be in sales, and that sounds like a good fit for your skill set and ambitions, Japan is a reasonably good place.

The market is tremendously underserved here with regards to technology solutions, in virtually everything relevant to you if you’re reading this. UX and design which Silicon Valley companies would consider barely adequate for an internal admin app would strike Japanese customers like wizardry from the future.

Competition from other startups is rather low, and Japanese megacorps do not exactly have Internet DNA yet, which means that distribution channels which are extraordinarily competitive in the US (like, say, AdWords or SEO) are not nearly as competitive here.

Market-leading foreign companies often neglect their Japanese operations, allowing “Like $NAME_A_STARTUP, but natively Japanese” to be a perfectly adequate strategy. Yes, you’re locked onto a “small island nation”, but it is a small island nation of 130 million globally rich people. (Dave McClure once said, with regards to Japanese startups, that they’re far too eager to exit the Japanese market and go multinational. I tend to agree with this assessment. The market here is gigantic and the competition usually sucks. I think that most Japanese entrepreneurs just want to broaden from the Japanese market quickly in the hopes that they’ll land somewhere which celebrates entrepreneurship.)

I’m optimistic in the longer term about the Japanese startup community specifically and, though this might be controversial here, the Japanese economy generally.

Recently, there has been a modest bit of interest by Valley investors in Japanese startups. I’m aware of YC and 500 Startups being active here, and some of the best Japan-based entrepreneurs I know have substantial cross-Pacific ties. (One plug: Jason Winder, CEO of Makeleaps, which is Freshbooks except for Japan, is presently in San Francisco. If you are, too, you should strongly consider taking him out for coffee. He’s the most formidable CEO I’ve ever met.)

Should any of the rest of you be interested in starting a business in Japan, investing here, or what have you, please drop me a line. I’m always happy to help. Similarly, if you’re ever in Tokyo, I’d be happy to say hiya.

もちろん、日本の方にも役に立てるなら、ご連絡ください。

Kalzumeus Podcast Episode 9: Customer Onboarding With Samuel Hulick

Posted on October 15, 2014 by Patrick in podcasts

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

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

What you’ll learn in this podcast:

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

Podcast: Customer Onboarding

MP3 Download (~75 minutes, ~110MB) : Right-click here and click Save As.

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

[powerpress]

Transcript: Customer Onboarding

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

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

Samuel Hulick: It is wonderful to be here.

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

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

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

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

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

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

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

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

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

Samuel: I’m honored that you think so.

Patrick: After building you up so much…

Samuel: [laughs]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Samuel: [laughs]

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

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

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

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

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

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

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

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

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

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

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

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

]

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

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

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

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

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

Samuel: [laughs]

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

Samuel: I concur. Yeah.

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

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

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

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

Patrick: Oh, please do.

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

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

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

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

The Fundamental Feedback Loop Of Low-Touch SaaS Companies

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

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

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

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

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

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

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

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

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

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

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

Samuel: I completely agree.

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

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

Samuel: Sure.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Put Better Default States In Your UI For New Accounts

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

Samuel: Right, kind of accusatory.

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

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

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

Patrick: Exactly.

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

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

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

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

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

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

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

Samuel: I always call it “ping.” I don’t know. Do you just say the letters?

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

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

Patrick: Wow, I don’t know. It’s different than “jiff.”

Samuel: [laughs]

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

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

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

Samuel: [laughs]

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

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

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

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

Samuel: Slideshows.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Samuel: [laughs]

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

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

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

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

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

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

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

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

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

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

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

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

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

Samuel: There you go.

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

Anyhow, going back to the book for a moment.

Samuel: Yes.

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

Samuel: [laughs]

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

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

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

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

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

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

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

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

Samuel: Yes.

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

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

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

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

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

Samuel: I completely concur.

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

Samuel: There you go.

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

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

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

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

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

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

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

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

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

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

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

Samuel: For sure.

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

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

Samuel: That’s awesome.

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

Samuel: [laughs]

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

Overnight Success, Isn’t.

Samuel: A little bit over 11,000.

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

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

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

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

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

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

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

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

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

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

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

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

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

Samuel: [laughs]

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

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

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

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

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

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

Samuel: [laughs]

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

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

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

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

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

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

Patrick: Yes.

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

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

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

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

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

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

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

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

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

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

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

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

Patrick: [laughs]

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

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

Patrick: Sure.

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

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

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

Patrick: [laughs]

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

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

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

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

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

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

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

Samuel: Financially speaking?

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

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

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

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

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

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

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

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

Patrick: Awesome. Congrats.

Samuel: Thank you.

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

Samuel: Awesome.

Patrick: Only took 10 years.

Samuel: [laughs]

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

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

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

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

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

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

Samuel: Nodding vigorously over here, once again.

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

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

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

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

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

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

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

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

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

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

Samuel: That makes a lot of sense.

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

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

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

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

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

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

[Patrick notes: See the postscript.]

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

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

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

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

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

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

Samuel: I wholly concur.

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

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

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

Samuel: S‑A‑M‑U‑E‑L H‑U‑L‑I‑C‑K.

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

Samuel: Awesome.

Patrick: All right. Bye‑bye.

Brief Postscript On My Conversion Optimization Course

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

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

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

Harry Potter And The Cryptocurrency of Stars

Posted on August 5, 2014 by Patrick in cryptocurrency

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

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

What Is Value, Anyway?

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

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

Goblin Banker: Galleons.

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

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

Harry Potter: What is a galleon worth, anyway?

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

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

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

Harry Potter: Galleons are gold, right?

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

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

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

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

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

Harry Potter: Crypto-what?

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

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

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

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

Harry Potter: Of course.

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

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

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

Harry Potter: “I trust Gringotts…”

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

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

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

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

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

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

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

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

Harry Potter: Certainly.

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

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

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

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

Debts Which Are Transferable Enable Transactions

some time later

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

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

Harry and Ron: What?

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

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

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

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

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

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

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

Ron Weasley: What’s a gigabyte?

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

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

Harry Potter: Stellar-what?

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

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

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

Harry Potter: What just happened?

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

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

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

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

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

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

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

Harry Potter: That sounds dreadfully inconvenient.

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

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

Harry Potter: Me neither.

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

Walking The Web Of Trusted Currencies

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

Harry Potter: Great idea.

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

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

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

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

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

Ron Weasley: What’s a quid?

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

Ron Weasley: What’s a pound sterling?

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

Ron Weasley: Paper?! Not gold?

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

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

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

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

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

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

Ron Weasley: I don’t have a quid.

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

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

Harry and Ron: What?

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

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

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

Ron Weasley: Hey!

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

Ron Weasley: A what?

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

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

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

Ron Weasley: Do they have to be three letters?

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

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

Ron Weasley: Stellarmus, send Harry Potter a quid!

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

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

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

Harry Potter: Run that by me again?

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

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

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

Harry Potter: What currencies do you trust?

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

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

Stellarmus rattles off a long, long list.

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

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

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

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

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

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

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

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

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

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

Ron Weasley: Is a stellar gold or paper?

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

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

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

Cho Chang: What’s up, Hermione?

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

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

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

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

Hermione Granger: That’s a favor?

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

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

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

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

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

Stellarmus: Done!

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

Harry Potter: What? You got a pound.

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

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

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

Harry and Ron: WHAT?! Why so many?

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

Harry Potter: So who has my quid?

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

Harry Potter: Cho just cheated me!

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

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

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

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

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

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

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

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

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

Harry Potter: Should I buy stellars then?

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

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

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

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

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

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

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

A Choice Of Evils

later that year

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

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

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

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

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

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

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

Harry Potter: Stellarmus, info on account Gryffindor.

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

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

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

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

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

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

Ron Weasley: What just happened?!

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

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

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

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

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

Ron Weasley: Well banks sound fairly trustworthy, Professor…

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

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

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

Harry Potter: So you want something like gold?

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

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

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

Hermione Granger: The Cryptocurrency That Cannot Be Named.

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

Harry Potter: Math math math, blah blah blah?

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

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

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

Hermione Granger: You’ve used Stellarmus.

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

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

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

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

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

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

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

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

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

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

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

Defense Professor: Your smugness is insufferable.

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

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

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

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

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

Defense Professor: The truth will set you free.

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

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

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

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

Ron Weasley: That seems pretty reasonable, though.

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

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

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

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

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

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

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

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

Defense Professor: Would you do that trade again?

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

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

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

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

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

Author Notes

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

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

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

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

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

Posted on July 24, 2014 by Patrick in podcasts

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

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

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

What you’ll learn in this podcast:

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

If You Want To Listen To It

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

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

[powerpress]

Transcript: High Touch Software Sales

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

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

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

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

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

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

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

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

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

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

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

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

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

Steli: January 2013.

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

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

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

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

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

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

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

Patrick: Definitely.

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

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

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

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

Improving Software Sales: Low Touch vs. High Touch

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Steli: Yeah.

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

Steli: But it’s also harder.

Patrick: …to just hear somebody say it.

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

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

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

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

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

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

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

Steli chuckles.

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

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

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

Steli: Yeah.

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

Steli: [laughs]

Patrick: Yeah, rejection is tough.

Constructively Dealing With Rejection

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

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

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

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

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

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

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

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

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

Patrick: I like this.

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

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

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

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

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

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

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

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

Steli: Yeah.

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

Steli: [laughs] Always double your prices.

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

Steli: Yeah.

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

Steli: Yeah. We ask for the phone number.

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

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

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

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

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

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

Steli: Yeah.

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

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

Patrick: You’d better change the website!

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

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

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

Steli: [laughs]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Steli: There you go.

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

Steli: It’s crazy, right?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Steli: Yeah. That’s a good thing.

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

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

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

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

Calibrating Your Expectations and Pipeline Management

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Patrick: A lot of money on the table.

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

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

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

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

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

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

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

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

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

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

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

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

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

Why Steli Shuttered A Very Successful Consultancy

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

Steli: Yeah.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Steli: What’s broken?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Steli: Yeah, exactly.

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

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

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

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

That’s really why it’s so hard to let go, because you’re like, “Wow, we’ve built this amazing group of people and talent. We would never want to let them go, but we can’t also hold onto everybody. It makes no sense.”

Patrick: That’s also one of the not-so-hidden advantages of Silicon Valley which is, in a lot of other locales the surrounding ecosystem couldn’t exactly conveniently absorb 60 very well-trained SaaS sales guys. Where, in the Valley…I don’t know how you actually managed it, but I’m presuming 60 very trained, very effective sales guys could all get jobs within, what, a week?

Steli: Not all 60 were in-house. The team that was in-house was much smaller. We’re talking 25-30, so half of that. But all of these people got jobs in the Valley. A majority of them are directors of sales, VPs of sales of high-growth, amazing companies. A lot of them became managers or executives at companies that were our customers, naturally.

We made sure that everybody got an amazing opportunity, and used what they learned with our business to take the next step in their career, in many cases with companies they were doing sales for anyway.

Patrick: This is a fairly common trajectory in consulting, by the way. I know some folks in the audience might not know this, but employers often say, “We’ve gotten used to working with Bob over the last two years. He’s been instrumental in our blah, blah, blah efforts.”

For an ongoing consultancy, there’s often a discussion between the consultancy and the client like, “Can we” — I hate this word — “‘buy’ Bob from you? Or work out an arrangement where we can recruit him without violating your various covenants that are in place?”

Steli: Yeah, it happens a lot.

Patrick: Yeah, it’s great. If you can get your existing clients a satisfactory resolution, it’s like nothing changes about your business aside from, “Rather than cutting us a check and paying us half the money, you just hire on the guys who you had working on sales, directly. Now you’re their employer of record. Congrats.”

Steli: Yeah. I’m really proud of that transition, and the relationship with all of the people. Not only that all of them remained friends — all of them became customers. Even the ones that went to companies that weren’t using our software turned around the company to purchasing the software product from our side, so all of them are customers, all of them are friends, and we have really great relationships.

But again, the actual day I had to announce this and have one-on-one conversations, let people know that, “This is the direction of the business moving forward, and some of you will move with us and some won’t” — single hardest day of my life.

It sucked, and in that moment you don’t have the advantage of hindsight to know everything will work out well — and people don’t, so it’s a terrifying event for people. But I’m glad how everything turned out. It was still very difficult to do that.

Patrick: Yeah. I can barely imagine.

I think this is something entrepreneurs might not…I guess many of us have a pre-entrepreneurial career where we had the employee mindset — I certainly did — but I think entrepreneurs, we have our own little culture about stuff. We’re like, “Yeah, you get a company shot out from under you, that’s no problem.”

“Real people,” who have jobs and expect a paycheck every two weeks, getting separated from a company when they didn’t see that coming is a really big problem!

Steli: Yes.

Patrick: I think we’re like, “Oh yeah, fail quickly. We’re going to dissolve the company and start a new one, yadda, yadda.” We owe it to employees to find them…a “soft landing” is a term of art, but it’s a useful term of art.

Find them a transition plan that minimizes the stress for them because employment isn’t just a business relationship. It’s the one business relationship that’s sort of a sacred trust, too. You’ve got to take care of those folks. I’m really glad that you managed to do that in that forthright and mutually — tri-party mutually — successful manner.

I think this is probably running to the hour and a half that these podcasts usually run, so where can folks find out more about Close.io if they want to — aside from Close.io?

Steli: Close.io is a good way to get started. If you go to close.io/blog, when you go to our blog there’s a lot of sales content that people can read, and a lot of people seem to like it. People can just get in touch with me personally if they want to, if they want to chat sales, entrepreneurship, or anything else. Just steli@close.io. We do have an email course to no small part…

Patrick: Yup, Steli took my course on doing lifecycle emails.

Steli: Yeah.

Patrick: It worked out for you, right?

Steli: It worked out. I don’t know how many thousands we’re making more every month because of it, but it’s a lot, so we owe a lot to you.

Patrick: I’m going to write that down for a testimonial for the page. “I don’t know how many thousands we’re making from it, but it’s a lot.” [Patrick notes: I should really do this.]

Steli: It’s a lot.

We have a startup sales email course for people that thought some other things were interesting and they want to learn more. Actually, you can learn both more about startup sales, and learn what I learned from Patrick, in terms of putting email courses together.

Patrick: Awesome. Thanks very much, and I’ll sign off for myself. I’m Patrick. I always love getting emails from people, so please drop me an email. It’s patrick@kalzumeus.com. Presumably that’s spelled, wherever you’re listening to this.

If for some reason you aren’t on my email list yet, you really should be on my email list. It’s at training.kalzumeus.com. Just give me your email address and we’ll send you stuff that you enjoy.

One announcement that is upcoming from me, I’ve been working on a conversion optimization course for the last several months, all about B2B SaaS businesses, getting them more trials, more sales, yadda, yadda. It will hopefully be functioning later in July.

If you look on the bottom of this podcast, there will be…I guess I’ll just give a Bitly link. Bitly/kalzumeuspodcastsconversion. [Patrick notes: Unshortened link is here.] Just click that, and you can get an announcement when that course launches. I’m hoping to get it done in July. [Patrick notes: I’ve been working on it most days for the last several weeks, but unfortunately, launching in July is not realistic. We’re moving to Tokyo next week. Sign up and you’ll hear when it is ready.]

Thanks very much. It was an awesome conversation. I particularly like how we got into actual nuts and bolts of it for SaaS businesses but for the LTV in the 5K-10K range, because I’ve worked with companies that have started fits and spurts in sales. It’s really made a difference for the business.

Thanks so much for showing up, and for all you guys in the audience, hopefully we’ll have another one in another month or two, and we’ll see you next time.

Steli: Thank you so much. Bye, guys.

Patrick: All right. Bye, guys.

Kalzumeus Podcast Episode 7: Launching New Products

Posted on June 19, 2014 by Patrick in podcasts

Keith and I recorded a new episode of the podcast last year, but we didn’t get around to releasing it.

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

What you’ll learn in this podcast:

How to pick a small, self-contained product, which is good to cut your teeth on as a dev-turned-entrepreneur.
How Keith extracted Summit Evergreen out of his consulting work (improving infoproduct businesses).
How to use concierge onboarding to increase conversions and decrease churn of SaaS businesses.
That it is possible to build a very successful consultancy without being quote-unquote Internet famous.
How to use Standard Operating Procedures documents to have employees do repetitive tasks without needing to actually automate them, while you’re still exploring for the best procedure for completing those repetitive tasks.

If You Want To Listen To It

MP3 Download (~115 minutes, ~85MB) : Right-click here and click Save As.

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

[powerpress]

Transcript: Launching New Products

Keith Perhac: We’re started.

Patrick McKenzie: Hello everybody and welcome to…What is this? The eighth episode of the Kalzumeus Podcast. [Patrick notes: There was an episode #7 in recording sequence, but due to some issues, we haven’t gotten it ready yet. It will retroactively become the 8th episode.]

Keith: Indeed it is.

Patrick: I’m Patrick McKenzie here again with my co‑host, Keith Perhac.

Keith: Hello, again.

CreditCard.js: A Nice Product, Both For Customers And The Founder

Patrick: Let’s see, we’ve got a fun day planned ahead of us. First thing we’re going to be talking about is Creditcard.js and that’s in eponymous creditcardjs.com.

Keith: That’s because that came out today, I believe, on Hacker News, which will be about two weeks from when we actually get this up. [laughs] [Patrick notes: Actually recorded 8+ months ago. Sorry — life happened.]

Patrick: Predictably, just to give you folks an idea of what it is, it’s well executed CSS, JavaScript and HTML which does the standard static credit card form. But it does it well, such that when you start typing in a credit card number with a four, it knows that it’s a VISA and it does error correction and does the Luhn checking in real-time without having to submit it to your servers.

This is like every credit card form that you’ve ever coded in the last five years, except it’s done well without you having to work at it for three hours. It makes a very good self‑contained product, I feel. Something that can be built over the course of a few weeks, tuned to within an inch of its life, and then sold to people.

Because it’s sitting in the critical path on taking money from every website ever, it’s worth quite a bit of money relative to the amount of time I feel it would take to build, and can be sold to many people in parallel.

Keith: If you haven’t read the Hacker News commentary on it, or forgot about it, the community is pretty divided on it, and ironically enough, so are we.

Patrick: I think it’s a wonderful idea that’s going to make this guy tens of thousands of dollars, and Keith is like, “Oh, you could do that with open source in the weekend.

Keith: Yeah. I have to say, normally I am not on the side of open source will solve everything and I should be able to get it for free. I am more on the side of paying for it if it saves me time. This is especially apropos because I just launched my first SaaS product last Monday. This Monday, which we’ll be talking about in a little bit, I had to build the credit card form for that.

I am uniquely capable of saying, “OK, I know exactly how much time I spent in putting up my credit card.” That being said, the credit card JS right now, is $150.00 during their beta, and $250.00 after that. It’s one year of upgrades and unlimited use, is what I believe their licensing says.

Patrick: I think it said that the licensing is per-site.

Patrick: If you have 15 clients, you’re going to have 15 licenses. I think it’s rounding error next to the amount of money you typically put through a credit card form, and also next to the amount of time you’d spend in building that from scratch. I think I have probably been involved in 10 projects like that for consulting clients.

Conservatively, over those 10 projects, they have a $100,000 invested in their credit card forms. If I could just take this off the shelf, drop it in and say, “All right, it’s going to cost a total of $1.5K and I’ll get to the more valuable AB tests” rather than having to re‑implement this from scratch every time, I would be doing that every time and all the time for consulting clients.

Keith: What we are talking about really is for a company or someone who does this all the time maybe it is a better investment. I actually would the opposite. If you were a consulting client, or if you are a consultant and you are doing this constantly it would be better to have your own solution instead of paying $250 for each client you install this for. If that’s billable to the client that’s something else. [Patrick notes: Strongest. Possible. Disagreement. He’s talking crazy talk.]

The reason I say this is because like I said, about a week and a half ago, I built the credit card processing on my site and I needed, essentially what this does? What this does is it makes a really pretty form and it detects the card number like Apple site does, where you put in a 42 and it automatically says, “Oh, this is a Visa” or you type 34 and it says, “It’s an American Express.”

It formats it out nicely so it’s got the spacing right, the name on the card, the expiration date, the security code that has a little about html. Here is where you find your security code, if it’s an AmEx, here’s where you find it, if it’s a Visa, et cetera.

It’s very nice. Coding it from scratch would be absolutely horrible. If you were planning on coding it from scratch I highly recommend not, and buying this instead. The problem is I use Stripe. Stripe has a lot of great open source solutions that they don’t need Stripe to be running on. One of them is I believe they call it jQuery.payment or payment.jQuery or something like that.

Patrick: Google it. [Patrick notes: I Googled it for you. It was, indeed, jquery.payment.]

Keith: Yeah, Google it, Stripe Payments, it’s really easy. But it has all the same functionality for the JS. It does not have the pretty form which I think is really the crux of this argument.

Patrick: That’s what I generally want to buy, considering pretty is not a strong suit for me. But I do tend to disagree. Stripe’s jQuery payment thing: I like it. I’ve integrated it myself. I took my nice pretty form done by a designer and then ended up integrating the javascript myself, and it’s an hour’s spent of hooking up javascript events to HTML divs and whatever with that funky dollar syntax, and it doesn’t make me any money.

Keith: This is true. If you run a business, you have to do a balancing act. It took me two hours to reproduce creditcard.js on my site. An hour of that was finding the stripe payments processing code because I had never heard of it before.

Patrick: This is one of these times where he’s my best friend and I want to punch him in the face because his charge out rate is $500 an hour and he’s arguing about $150 to save him two hours. [laughs]

Keith: But it was a good learning experience for me. That’s another thing. If I was rushed, I’m not debating whether this is a good purchase or not. Really, I’m not.

Patrick: A punch in the face.

Keith: [laughs]

Patrick: Shall we move on to something else?

Keith: Yeah, let’s move on to something else.

Patrick: For those of you who haven’t already got credit cards up on your site or if you feel that the user experience is not optimal and you want to try AB testing or something to see if you catch more transactions, take a look at creditcard.js.

Keith: I will say. I will say 100 percent I’ll stand by that. Try out creditcard.js. I would A/B test it. A/B test it against your current one, against creditcard.js. They have a 30‑day money back guarantee. If you see your sales dropping or you don’t see improvements, tell them. “Hey look. It didn’t work. It didn’t work as advertised.”

Patrick: As one of the two resident A/B testing gurus I can’t say I’d pop this in an A/B test right away, because how many transactions would you need to be running a month to get statistically significant data there?

Keith: I have clients that could do it in a week. [laughs]

Patrick: Well, yeah.

Keith: I have small clients. I have four people clients that could do it in a week.

Patrick: Yes, but they do run tens of thousands of transactions, right?

Keith: Yeah, they do.

Patrick: If you got tens of thousands of transactions a week, totally pop this in an AB test. If you haven’t quite gotten to the level of tens of thousands of transactions a week, just put your finger to the wind. Take a look at their landing page and say “Is this not as good as what I have currently?” If it’s not as good don’t include it.

I’ve given this advice to a lot of my A/B testing clients like so. Earlier on in the funnel when you have high volumes and have a relatively high conversion rates like to email submissions,for example, it’s easy to just find volume to do A/B testing. But at a certain firm size, like even in the say $10 to $50 million range A/B testing the credit card form can be kind of difficult just because you don’t have the massive volume on transactions.

Typically at my companies they would be doing high value transactions. Even at $10 million that might be only a thousand through 10,000 transactions which won’t be easy just to get to statistical significance. It will take a, emperor, era, reign, age thing.

Patrick: What is the English word for that?

Keith: Era-century? Era, I think?

Patrick: No, like 平成、is what? [Patrick notes: Sorry if you don’t understand Japanese because this part of the conversation will be pretty unintelligible but we know what we’re talking about.]

Keith: About 25 years right now?

Patrick: Yeah, I know that. Heisei is an example of what? I keep coming back to the words “imperial reign…”

Keith: Imperial era.

Patrick: Imperial era, that’s right. This is how we count years in Japan by the way. What emperor is reigning during the relative period of time and how many years. But, yeah, you won’t achieve statistical significance before we have a new emperor and every Japanese company has to update every payment form. That’s going to be a lot of fun work.

Keith: That’s a lot of chances for business.

Patrick: Apropos of nothing, a world created by programmers would have no dates, time zones, imperial reign things, all of it…

Keith: Or sales tax.

Patrick: Sales tax. These things just like burning with fire. Why did we ever come up with this [laughs] ?

Keith: It’s going to be interesting because as you know, next year our sales tax goes from five percent to eight percent. It’s an increase of three points. There’s a Japanese law that all prices have to written with sales tax included. Every single sign in the country will have to be reprinted.

Then one year later they’re going to be raising it to 10 percent and we’ll need to rewrite every sign again. [laughs] We said we weren’t going to get in on that.

Keith Discusses Summit Evergreen, His New Product

Patrick: Launch?

Keith: I’ve launched my first SaaS. Going well! It’s Summit Evergreen.

Patrick: You should give people the elevator pitch because I don’t think that you talked about it all that much on this podcast yet.

Keith: We have not. As you know I do consulting for a lot of clients. A lot of my clients are info‑product people. What is the name for the product? I can see you cringing right now behind your glasses or…

Keith: What do you prefer as the name?

Patrick: Productized consulting or even sometimes I refer to the form factor, like the e‑book or video courses. Anything sounds better to me than info product because info product pushes my Internet marketing neuroreceptors and they are not happy neuroreceptors.

Keith: I hate the word e‑book with a burning passion, so let’s do video course.

Patrick: OK, a video course.

Keith: Patrick put out his Lifecycle Email course which is amazing if you haven’t checked it out. I am completely unbiased in that. I do a lot of consulting for clients who do video courses or just pure text courses, mainly video. One of the things that is difficult to do, especially with a video course, is to provide value over a length of time. You can say, “Here’s my course.” They get it all. It’s like, “I paid $500 for this and it was done in a day and now I don’t know what I got for that $500. I have a lot of content, but I am not led through it.”

The idea is that you take your content, you have your video course, and it’s a real course. When you go to a community college, they don’t just give you all the books and say, “All right, we’re done.” It’s this back and forth between the teacher, the content, and you. It’s doled out over time. I think that’s one of the key parts of a video course. It’s the same as your Lifecycle Email course is that it’s doled out over time. It’s not, “Here’s everything. Go at it.” It’s first we do this and then let’s build on it.

Patrick: One of the problems with critically hitting people with a wall of case, or dropping five hours of video on somebody on one day, if you actually look at the analytics for who’s successfully watches and takes action on it. (Ultimately the goal for both parties on it is them taking action on it.)

As a gateway to them taking action on it, they need to actually watch the lesson. A lot of people watch the first hour. Less people watch the second hour. It trails off. The fifth hour, five to ten percent of the people who bought my course, actually watched the fifth hour, which is sort of unfortunate.

Keith: Another thing that I noticed when you have the entire course, interestingly enough I got access to the Lifecycle Email course all at once because Patrick was nice enough to skip me forward. [Patrick notes: Keith thinks that my course was dripped out to customers, but he’s not actually correct. It was all delivered at once.] One of the issues with it is that you tend to skip the things you think you already know.

It’s like, “Oh, I already know how to write a welcome email. I’m just going to skip that part.” That has a detrimental effect on both the customers feeling towards the course as well as their understanding of the course. Especially, if you build off things that you might have skipped, then they’re going to feel lost. That’s going to turn into churn.

Patrick: We might need to explain what churn means in this context. Just going back on for a second on that one, as a teacher and someone who has done one of these products before, sometimes a video that says on the tin that teaches you something you think you already might know might have a tactical implementation tips might have has wildly disparate value that people don’t always realize are there.

For example, I had consulting clients who are already sending dunning emails. Dunning emails are just emails which tell folks that they owe you money and attempt to collect it. I won’t tell you the whole spiel now. There are good ways to write down done‑in emails. and there are bad ways to write done‑in emails.

There are a lot of clients or a lot of companies that sell SASS or some product that gets billed every month, will send out a done‑in email like, “You’re credit card failed, please update.” That will be the entire text of the email. There are better ways to do that which get higher rates of audience compliance. If you get customers to comply with the instructions to pay you money that’s worth staggering amounts of money on scale.

Keith: Yeah, exactly.

Patrick: People might skip that video because they think they’ve already implemented dunning emails. They think: “How hard is the dunning email? It is two sentences long.” I have had consulting clients where I was in the building able to direct them through re‑implementing that and made them five or six figures for thirty minutes work on their emails. That’s unfortunate.

Back two steps, you mentioned that it helps decrease churn when you increase people’s perception of value and get them to consume more of the content that was in the video course. What do you mean by churn in that context? I think a lot of people are coming from it, “Wait. The business model is a one‑off sale. We don’t have churn in a one‑off sale.”

A Brief Note On The Challenges Of Infoproducts In Some Markets

[Patrick notes: Keith has extensive experience working with clients who sell B2C infoproducts in particular markets where, by nature of the type of customer, many customers experience buyer’s remorse and attempt to cancel the purchase. The following discussion is not quite so relevant if you e.g. sell books on Rails development or software.]

Keith: That’s a little dirty secret of “video course.” I put it in quotes, because you know what I wanted to say. At any sale on the Internet. A one‑time sale is not a one‑time sale as long as that a credit card was used for the purchase. The reason for that is, first of all, most video courses have a refund policy.

If people are not happy within that refund policy, say that’s thirty days, then they will refund. That’s what I mean by churn. In a refund, you’re losing money. You already gave out the course, they don’t like it. They’re refunding. Then you say, “Oh, I just won’t let them refund.” That causes another big issue which is…

Patrick: That’s something you never, ever, ever want to do.

Keith: Which is charge backs. OK, so the credit card company, how many days is a charge back now a days? 30 days?

Patrick: 180 days, Keith.

Keith: 180 all right. For 180 days after someone has purchased your product, they can go to their credit company and say, “I didn’t like this. I want a refund. It wasn’t me.”

Patrick: Anything that merchant did not live up to their claims on the website. You will almost invariably lose that charge back.

Keith: You will indeed. That charge back will not only take your money and they will charge you a hefty fee on top of that for trying to take someone’s money.

Patrick: I almost had one of these for the Bingo Card Creator. They’re annoying. It’s a cost of doing business. I understand this happens once or twice a year for reasons which are only somewhat in my control. You get the $30 for the product back. I just got assessed a $15 fee from the bank.

Keith: That $15 is from Stripe who is nice about it. Other processors will have $25 to up to $100.

Patrick: Yep, because it’s largely a manual process for chargebacks. They are not handled through APIs like Stripe is.

Keith: You want a refund policy. You don’t want to piss off your customers because they will hurt you more than it costs you to give them the free product. That’s what I mean by churn. You want people to be happy. You want people to find value from your product. Not only because you want to help people, which you should do, but also because it will financially hurt people if they are not happy with it.

Patrick: I should note that the base rate of refunds is wildly disparate depending on what the audience for the product is. For example, in the B2B case, refunds are very rare both for video courses, SaaS, virtually anything you sell to businesses. The refund rates are scandalously low. I think I had on order 250 sales of my course, and two refunds.

One of which they refunded so that they could buy the more expensive version instead, so net one refund. A baseline B2C rate of refunds, let’s see. Bingo Card Creator has a very high refund rate because I am very aggressive about offering customers refund to solve customer service issues. That’s on the order of 2.4 per cent in most years. Higher this year due to a PayPal fraud ring.

Keith: Video courses…Didn’t you have a higher one?

Patrick: Yeah. Especially as you get closer and closer into the dun-dun-dun Internet marketing space, the refund rates approach like the double digits range where if you are getting close to that, something is wrong.

Keith: Yeah. I think refunds are the dirty little secret. No one ever thinks about that when they are creating their product. “Oh I made a million dollars in sales this year.” Well, fifteen percent refunded. That is 15 percent of your revenue gone. [Patrick notes: Again, in most industries relevant to you guys, if you have a 15% refund rate that’s a four alarm emergency for the business. This should never, ever, ever happen to you.] You really have to care for your users. Going back to the topic at hand, that’s what a dripped course does and a dripped course.

A dripped course is a course that’s doled out over time from the time that the person purchases. This is a very common thing in video courses and what not. The problem is that there’s no real software that supports this right out of the box. Most people either build their own solution like Patrick did.

Patrick: Don’t do that by the way.

Keith: It’s really a pain in the ass honestly. The other thing is to do a launch and then drip it out manually, which is what they do when you use WordPress or what not. Essentially what happens is, on launch day, you say everyone’s buying on this day. Then, for the next, at the beginning of the week, I am going to launch the next week of content.

The problem with this is you can only do that once. If you want to sell it again, you got to do it again. What people end up doing is they make an e‑book, because e‑books are very easy to evergreen. [Patrick notes: Keith is here using evergreen as a verb to mean “To sell in an ongoing fashion rather than as a one-off sales event.” Think more like selling books and less like selling movie tickets, although it is actually the case that sales for most books are, like movie tickets, highly front-loaded. Still, in general, you can sell books outside of the “new release” window and its attendant publicity, but this doesn’t happen to movie tickets.] They are very easy to make once and sell to everyone.

Keith: This is one of the interesting conversations that I had a multiple times on hacker news as well. How much do you consider an e‑book to be worth?

Patrick: I think that varies wildly depending on what’s in the e‑book. Let’s say hypothetically that e‑book is being sold to businesses and has something that will eventually increase their revenue or reduce their costs.

Keith: Let’s talk the highest cost an e‑book could probably get you for a business as a downloadable pdf.

Patrick: OK as a download a book pdf, I think you could definitely do things like Nathan Barry had done with higher tiers.

Keith: He puts things together with the e‑book.

Patrick: Just a flat downloaded pdf. I’m thinking somewhere in the $49 to $99 range.

Keith: Yeah exactly. How much is your life cycle email course?

Patrick: $497 or something rounded to $500.

Keith: Yeah. Do you think you could have sold that as e‑book for $500?

Patrick: I think it would be very difficult to convince people that it was worth $500 as an e‑book.

Keith: Actually, I do this with my consulting clients as well because many of them do the e‑books because it’s very easy to evergreen. They launch once and they forevermore say, go to my site, my shopping cart page, buy the e‑book, and then you’ll have it. Then they’re like and that’s worth $50‑$60. The problem is that’s worth $50‑$60, that’s great. You’re not going to sell a $2,000 or a $3,000, or even a $500 e‑book like that.

You can take similar content, add video, add downloads, add all these other extra things in there and drip it out over time to make it more valuable. That’s what the course does. That’s what my system does, Summit Evergreen.

Let’s you do is take your video course, take your audio course, take your written course, take your download, take your feedback, and drip it out over time in an evergreen fashion. Based on whenever a person purchases, they run through the whole course. Just like the course that Patrick wrote from scratch. How many months did that take you to build your courseware?

Patrick: I think it was, I want to say, two weeks. That’s like an engineer’s two weeks, so it’s probably really four weeks.

Keith: Four weeks?

Patrick: Yeah.

Keith: As a very good engineer, with the framework, and you would have done processing with Stripe before. You knew how to hook up their API. You used a lot of code from other places, yeah?

Patrick: Copy/pasted in the entire user model from Bingo Card Creator.

Keith: [laughs] So we’re really talking, if you have all the modules and everything, great, very easy to set up, four weeks of engineering time.

Patrick: It’s easily in the five figures of engineering time.

Keith: It’s a large project.

Patrick: That’s often a cash cost for a lot of Keith’s customers because these people who do training on the Internet do not necessarily have Ruby on Rails developers just flowing out of their ears. When Keith’s clients come to Keith, they pay Keith cash money to set up systems to sell this.

Keith: That’s one of the things that we’ve been doing. We’ve looked at the ways that people have marketed their video courses, ways that people need to look at their video courses, and not only the data. Patrick you say that you only have 250 customers.

I say “only” not with any derision, but with love. I have some clients that have 10,000, 20,000, 30,000 users running through theirs. What do you have for user analytics. Do you have anything?

Patrick: Nothing.

Keith: Exactly, you are not alone in this, this is another one of those dirty little secret like refunds. Once people buy the course, are they using it? Even if they don’t run a refund, did they use it? What did they like? What did they not like? What should I do for my next course?

Patrick: I’ve done ad hoc surveys after they bought it. Talked to them individually, and there’s a page I can go to in Wistia which will showhow many people watched a particular video, and if I do the math there at, I could figure x over 250 equals over 25 percent of the people or only 10 percent of the people watch this video so question mark.

I supposed that could tell me something. I haven’t spent any time or built any analytics software to help me do that in a more systematized manner.

Keith: I think that’s really important because you can learn a lot from not only are people watching but who’s watching it. We’ve done dives into our analytics. This is basis of what the software we built. OK, let’s look at people who are refunding. We’ve found out that 70 percent of the people who listed their occupation as “education” refunded. Now we have a…

Patrick: What are you proving? That teachers are terrible, terrible market?

Keith: [laughs] If only me had created some Bingo cards or something for middle aged teachers in the Midwest.

Patrick: If there’s anyone on this podcast who does not yet understand it, do not go after the education market. Please, save yourself a lot of time and pain.

Keith: [laughs] What I was saying with that was now we have a flag. Now, that customer has a flag. That client has a flag to know when an educational customer gets within that refund period, at about that three week market, they should send extra support emails. They have a little flag that says send an extra support email that says, “Hey is there anything that we can help you with?” That helps in reducing refunds a ton.

Patrick: I really love this mid-touch idea where it’s not high touch like an enterprise sales process where your first contact with the company is, “OK, I’m going to give the sales guy my phone number. He’s going to call me, invite me out to a steak dinner, and then attempt to sell me a $750,000 solution.”

It’s not low touch like Bingo Card Creator where my idealized interaction with the costumer is never talk to them at all. They just deal with the website and email, “Give me $25.95″ and I never learn their names.

Somewhere in the middle where customers are sufficiently engaged with the product or they’re savvy enough or whatever the combination of things is. They can get all the value out of the product without even needing me to touch, talk to you. That’s fine. They can do it. Then, there’s customers who might need a little prodding or handholding, can be offered that prodding or handholding, but at scale and at such manner it doesn’t require basically one to one use of the company’s time and the customer’s time.

Concierge Onboarding

Keith: This was a key word that we brought up a lot. I am going to skip ahead one and then come back to one. Patrick and I went to MicroConf Prague, or MicroConf Europe in Prague, what three weeks ago?

Patrick: Yeah.

Keith: What was one of the key words there that we keep saying?

Patrick: “Concierge onboarding.”

Keith: Concierge onboarding.

Patrick: OK, concierge is probably one of the most important word that I’ve learned or has come into fashion in the last year or so for selling software on the Internet. Mind if I take concierge for a little bit? Back in the olden days, where it was just high-touch sales and enterprises selling things to other enterprises for $100,000 and there was a sales guy involved, and steak dinners and fancy bottles of wine preceded invoices.

There was this thing that was called “professional services.”Professional service was basically consulting that you had to use to get the software to be in some state and functionality, but the company was very rarely interested in consulting as a profit center. It was you would sell someone $20,000 of consulting to enable an $80,000 license sale of software.

Concierge onboarding is taking the core of that idea and applying it to the SaaS model. Instead of $100,000 licenses, it’s $50 to $500 per month. What concierge onboarding is rather than someone coming to your website and saying “I want the Small Business plan. It costs $80/month. I interact with their automated onboarding process.

Click, click, click, I interact with their automated onboard email sequence. Click, click, click the thing, never talk to anybody, OK it’s thirty days later and I pay my $80 on my credit card.”

Keith: If you’re lucky.

Patrick: Yeah, if you’re lucky. Twenty five percent of them if you’re very, very good at it will pay the $80 on the credit card.

You affirmatively get in touch with somebody that is a prospect for your service. They’re a lead or a trial. They just signed up for the service. You say, “Hey. There’s some configuration or data import or learning curve associated to getting up and running on this. We want you to grease the skids, grease wheels, of that onboarding process for you.

For example, if it is an analytics product, you’re going to have paste some JavaScript into your website. You might not be technical and that might be difficult for you. Tell you what, I will log into your website and do the copy pasting for you. You tell me your FTP username and password. I will get it done.”

In my case, Appointment Reminder often requires importing somebody’s contact data base into the appointment reminder system. There’s actually isn’t a system that takes an arbitrary data dump from any arbitrary patient or contact management system, converts it into an Excel file, and allows you to see arbitrary columns and import them into the data base.

Just tell people, “Look, get me any data file in any format that you can come up with, send it to me via email, I will figure out how to proxy it and import it into the system for you.”

On the assumption, that has been proven out in data, by the way, that OK, if someone comes in the door and says, “I want a $200 account.” Twenty five percent of them are going to actually convert into paying $200 a month and that’s happy. Seventy five percent of them who have their data imported into the system will actually convert into paying $200 a month.

That adds literally thousands of dollars to the lifetime value to move someone from the 25 percent chance of conversion to the 75 percent chance of conversion via importing.

Keith: Since there’s not that many people doing concierge right now. Once you have your data somewhere, it’s very hard to move out.

Patrick: Right, right. You don’t even have to use any Microsoft nastiness to make it difficult to get people’s data out of the system, you can just let friction work.

Keith: Right. [sarcasm]You can export all of your Google data, all your Facebook data to a nice, easy‑to‑understand Excel document. Then what the F are you going to do with that?[/sarcasm]

Patrick: If anybody ever wanted to leave the Appointment Reminder platform, I would be so happy to export them an Excel file of all the data they have in the system. Since nobody’s going to import that for them to free, that’s not really a competitive risk for me.

Keith: Right, exactly. The people who are going to import that for free are people who are directly your competitors.

Patrick: Or, to phrase it the other way, if someone gets their data from one of the competing appointment reminder platforms or one of the complimentary patient management platforms I will be happy to walk over any sort of engineering issue to get that data into my system just to make it easy for them to get up and running.

Keith: Exactly, exactly. Remember, your competition is not just your competition. You’re their competition. The better services you can get in getting their data into your system, the better you are.

Patrick: I feel like we’re kind of rat‑holing on that import thing. Back to concierge on‑boarding. I’ve seen companies that have successfully implemented it across their entire range of accounts.

One thing you can do just to get a baseline for how much that’s is going to cost you in terms of founder time or customer support team time or customer success advocate time or whatever you want to call it. Offer for a week to a small selection of people who are on the higher value plans.

“We saw you signed up for the higher value plan.” Don’t actually call it that. “Thanks for signing up for the office plan of the software. As a special benefit to you, I’d like to make it as easy as possible for you to get up and running. Why don’t we spend an hour on Skype to walk you through it?” That’s what Brandon Dunn does.

“Or can I help you with the data import? Just send me the stuff I’ll take care of it.” You do that five times, 10 times, figure out what your average cost of doing it is, and then run the numbers. What percent increase in conversion or percent decrease in churn rate do you need to justify doing that for all the customers on the higher tier plans?

You can offer it as an explicit benefit on the pricing page. Let’s say Appointment Reminder is priced based on how many appointments you use per month, and it’s the primary axis of segmentation between customer types. You’ve got to figure that some of the doctors who are on the $29 a month plan would be happy to pay more money if it was less painful for them to use.

Importing things manually by retyping is painful. I might say, “If you’re on a plan at least one level higher like the $79 plan we’ll take care of that importing stuff for you.” The doctor might say, “I only run enough appointments a month to do the $29 plan, but I’ll bump up to the $79 plan and not have to have my office manager lose her fingers retyping our customer data.”

That gets $50 a month times average customer lifetime of two years. That’s an extra $1,000 in my pocket just for offering what is, from my perspective, perhaps 15 to 20 minutes of scripting.

Keith: Same with Summit Evergreen. We’re concierge on‑boarding everyone, especially in the first trial, right now. Most of the people who are starting off at this not only didn’t have an idea, they already have a product somewhere. They have it on WordPress, they have it on…who else is really big right now?

They write their own systems, et cetera. I have a lot of people who have all their data in GitHub and Markdown and they process it themselves. We’ll say, “We’ll take your data, we import it into the database. You have a theme? We’ll help you convert your theme and import it into the system, and you’re up and running in a couple of days.”

Once you’re up and running, it’s so much easier to stay in that system, and it’s so much easier to get what you want to do done instead of spending all your time, like you say, wearing your fingers down to the bone reproducing what you already have.

Patrick: This is something that’s really important for basically any system where you’re trying to convince someone from moving off a working system they already have. Eventually, I think Keith will be moving into building this sort of system or selling this sort of system to people who it’s their first rodeo at the products on the Internet thing.

People who, in general, for selling business tools, the people who are easiest to convince to start using something and who have the highest budgets for it are not people who it’s their first rodeo. [Patrick notes: This is important, guys!] They already have a working system. It has some sort of disadvantage associated with it.

You convince them to move to your system, and then start charging them money for it and learning what your system needs to do to grow into the other under‑served segments of the audience.

Great example of that: Rob Walling recently launched Drip, which is a life cycle email/drip marketing management tool. I’ve been building drip marketing systems for years. Many of my clients would be on something like MailChimp. There’s pluses and minuses for using MailChimp for drip marketing. We’ll just leave that out there.

If you go to a J. Random Client and say, “You should switch to this new guy’s system,” all of them are going to tell you, “We have something that kind of works right now. We might have a bit of dissatisfaction with it, but it cost us $10,000 to get it up and running the first time and, honestly, nobody here has enough time to spend a week rewriting it for your tool.”

What Rob Walling will do is say, “If you will point us at a series of blog posts or an existing email campaign, we will screen‑scrape with our eyeballs everything out of that, get it up and running in our system, and then all you have to do is turn the key on your site. Re‑target your form from submit to MailChimp to submit to the Drip thing. Then, boom, you’re live on us. No work required on your part, hardly.”

Then the inertia works in his favor rather than working against him. “I’m up and running on Drip now, why would I use anything else?”

Keith: Pains of changing are really things you cannot discount. Once someone’s on something, the inertia to stay on that system is very strong. Even if you have overcome that inertia to we’re going to switch to the new system and there’s a bump on the road then the whole thing can come crumbling down.

We’re actually on MailChimp right now. Love MailChimp. We have more experience with AWeber. We’re going to move our [Patrick notes: heavily NDAed] number of people from MailChimp over into AWeber, and they have a nice import feature. We decided before we move everyone over we’re going to test this once. Good thing we did because it will send a confirm email to every single person on that list that has already opted in.

They have to reconfirm their email address to get into AWeber. We were all ready, we bought the account, we had everything. At that point, we were like this is a bump. We could probably call support and deal with it, but MailChimp is good. They’ve treated us well. We’ll just stay with that.

Patrick: That’s not just a bump, by the way.

Keith: That’s a pretty big bump. [laughs]

Patrick: I have an idea of what client he’s talking about.

Keith: No, it was me.

Patrick: That was you?

Keith: That was Summit Evergreen, yeah.

Patrick: Figure if you ask for a reconfirmation, unless your list is incredibly hanging on your every word, you’re probably going to lose between 60 and 80 percent of them.

Keith: Oh God, that’s a low‑ball.

Patrick: I think I would lose 60 percent on my list if I asked them to reconfirm their email addresses today given that about 50 percent of them open every email. I might get 80 percent compliance on the yes, I want to continue getting email from you. [Patrick notes: 40% is thus calculated via Bayes theorem, which is a college-level way to say “3rd grade multiplication.”]

Not to brag, but I think I have higher than the average emailer kind of loyalty for my list.

Keith: On the other hand, it’s not just loyalty. You’ve already been on a list. This is kind of going rat‑hole, but I just want to say this really quick. You’ve been on a list and they send you a reconfirm. First of all, you think maybe this is spam. Maybe you just trash it. Maybe you don’t open it. Maybe you email Patrick and say, “Hey, I got a reconfirm,” which I’ve gotten before.

I’ve had people email me that have been moved over to a new list and said, “Hey, I’m already confirmed, but I’m getting a reconfirm. Apparently someone’s trying to spam me from your address.” You just created so many support handles and support issues.

Patrick: It’s possible that someone has affirmatively moved your email from Google’s new promotions tab into their main inbox because they want to see it every time, but the reconfirm notice goes into the promotions tab and they don’t see that and suddenly they don’t get an email anymore. There’s just lots and lots of issues.

That’s one of the reasons why email marketing tends towards stasis. After you have a system that’s working, you don’t want to nudge it. Sort of like doing a DevOps.

Keith: Oh, God, yes.

Patrick: If you’ve ever gotten a particular version of Ubuntu running on your server, never upgrade it ever.

Keith: There’s a reason that I still have sites running on Slicehost generation one servers now owned by Rackspace…

Patrick: Obviously, you have to update your kernel everyone once in a while or there are going to be security vulnerabilities, and I understand that. I Just know, the last time I did the kernel update on Rackspace I had six and a half hours of downtime.

Keith: Exactly. I think that’s good about concierge servicing.

Patrick: That’s concierge stuff. Concierge is a tactic Keith is using for Summit Evergreen. Let’s talk a little bit more about that topic because there’s some interesting things that people who are doing their first SaaS business might benefit from.

Customer development is a catch‑word in the industry. I like Keith’s thing here for doing customer development. Basically, Summit Evergreen is an extraction out of his wildly successful consulting practice.

It’s not like the typical thing where I think I’m going to make schedule management for massage therapists, and I have not ever run a massage therapy business or whatnot so I don’t know if there’s a market for that yet.

In customer development, hopefully you would go out to the massage therapists and ask, “What do you use for schedule management? Do you have a burning schedule management problem in your business?” prior to building a solution and attempting to sell it to them.

Otherwise, you’re going to find that you make a solution that targets a problem that nobody has. Keith knows people who had businesses who sell meaningful amounts of money on these online courses have problems with the online course management.

They paid him previously meaningful amounts of money. Like meaningful amounts of money in a consulting sense rather than a $50 to $200 a month sense ‑‑ to solve these problems.

Are you comfortable saying what an average invoice is for somebody, one of the clients doing this?

Keith: I am, unfortunately, not.

Patrick: Let me pick a number out of thin air from my consulting experience as a ballpark number for having a high‑level consultant work for your business. Let’s say it’s $40,000 a project. If you have a successful consulting practice and you’ve been selling some certain segment of business, $40,000 services to get that aspect of their business better, then you know there must be someone who has at least enough burning desire to fix that problem such that they’re willing to pay for a software as a service offering if that software as a service offering is some percentage as good as having your expertise in the business for one week or two weeks or however you schedule your consulting engagement.

It’s highly unlikely that Keith is going to go to market now with Summit Evergreen, which is priced at whatever.

Tiered Pricing For SaaS and Infoproducts

Keith: Starting at 99.

Patrick: Starting at 99. What’s your pricing model for this?

Keith: 99, 250, and 500, I believe.

Patrick: What’s the pricing axis for that?

Keith: How do you mean?

Patrick: What determines whether I pay $99 or I pay $500, aside from the names of the plans? Naming plans are really, really important.

Keith: It’s all the names of the plan. No, I’m kidding. [laughs]

Patrick: I’ve honestly seen companies like that. No lie, guys. Seriously just putting the name “Enterprise” on something makes it more valuable than having the name “Hobbyist.” Can I tell my anecdote that I always tell about this?

Keith: Please.

Patrick: When I was working at a Japanese company, we needed to use Crazy Egg for something. Crazy Egg, shows you where you’re clicking on the website or where your customers are clicking on the website. I was the engineer in charge of this project. I ran the numbers.

We needed the hobbyist plan of Crazy Egg for nine dollars a month. I submitted an expense authorization form to my boss saying we needed the hobbyist version of Crazy Egg. It’s nine dollars a month which is about 1,000 yen.

My boss opens up the Crazy Egg page, scratches out hobbyist, writes enterprise, scratches out nine dollars, writes down $500 or whatever the equivalent in yen is, returns the form to me for re‑authorization so he can send it to his boss.

I said, “Boss, boss! We don’t need to spend $500 a month. We only need to spend nine. I’ve run the numbers. I’m very sure that we’ll have plenty of headroom under that.”

He says, “F if I’m going to my superior with the word ‘hobbyist’ on it.” It was worth $490 extra a month just to save face for an interaction between two people at this company which would have been over in less than five seconds.

Keith: This is one of the core marketing concepts that, surprisingly, a lot of people doing video courses do not get which is tiered pricing.

Patrick: SaaS companies don’t get this either, by the way.

Keith: It’s amazing. It’s absolutely amazing. At any pricing point, there is someone who will or will not pay it based on that. The idea is that you have a price point for whatever someone is willing to pay. If they’re only willing to pay $100, you have a $100 plan.

This, of course, you don’t want to have a five dollar plan. If someone is willing to pay $500 to $1,000 you better have a plan for them. Otherwise, they’re going to be on that $50 plan and you’re going to be out $900.

Patrick: Right. In the economics literature, there’s words for this kind of stuff that we’re just beating around the bush here. “Customer surplus” is the difference between what someone is willing to pay and what you actually make them pay.

Let’s say the value to my business of adopting this technology would be $1,000 so I’m willing to pay up to $1,000 to adopt that. Let’s say it’s $2,000. I have a 50 percent discount rate. I’m willing to pay up to $1,000. You charge me 50. That means I just received $950 in customer surplus from you.

One tactic to capture the customer surplus is called price discrimination — charging people different prices. Price discrimination in the classical market is sort of difficult because you have to offer…this isn’t a legal requirement or anything. Just operationally, it’s difficult to offer people the same product at different prices in such a way that you can maximally discriminate on their propensity.

SaaS does that by doing the nice, traditional, three to five column SaaS pricing tier thing and thinking really, really carefully about what’s in those three to five columns. Knock on wood, aspirationally, you think really, really carefully. The actual practice of a lot of SaaS companies is what a junior engineer threw up three years ago and no one’s touched.

Keith: This is really sad.

Patrick: On the plus side, if you ever work in a SaaS company, take a look at that pricing page. Do one to two days of really deep thinking. Every element on that page is should get asked: “Whose perception of the pricing offering is it supposed to modify and how?” Make a new version and test it. You can often add 25 percent plus to the enterprise value of the company for two days of work.

BTW, there are a lot of people who charge a lot of money for pricing advice just because the leverage on it is absolutely astounding.

Keith: If you improve someone’s pricing page and they improve their end of year sales that’s worth however much money they made that year because they’ll make it again next year and the year after that.

Patrick: It’s not just the bottom line. The leverage doesn’t extend just to the bottom line, it’s to the enterprise value of the company. [Patrick notes: If your company is valued at, say, 5X sales, and a change to the pricing page causes sales to go from $40 million to $50 million, that change isn’t worth $10 million, it is worth $50 million. Or at least that’s the number to claim if you’re a consultant trying to justify your rates.] It’s absolutely insane.

Keith: Which is why, actually, our tiers…you asked what our axis is. Our main axis is the number of customers. Since it’s Evergreen, it’s not the overall number of customers, it’s customer per month. If you got 200 new customers this month then you will probably want to buy this tier. If you’re expecting 500 new customers a month, you’ll want this tier, et cetera.

Patrick: This is one of the good patterns for both SaaS pricing and info product, video course pricing, too. Align the price with customer success. It’s one of the reasons people like micro metering models. I generally hate micro metering models for pricing most things, unless it’s basically a purely transactional thing like PayPal or Stripe or whatever where you’re getting a percentage of every transaction.

The one good thing that you can say about those is that they scale pretty directly with customer success. If someone sells $100,000 of stuff through Stripe they pay $3,000 or whatever in Stripe fees. If they sell a million dollars it goes up to 30,000. Stripe captures some percentage of the upside is their business grows and becomes more successful based on the Stripe platform.

Sometimes, SaaS are priced in a way that does not necessarily align them with customer success. That’s often unfortunate. As an example, I don’t know if they would appreciate me telling the name of it but there was a company I was involved with, and they sell to developers. One of their pricing axes was how many repositories we have.

The count of repositories in your organization is a very imperfect proxy for your business success. I don’t know if this is actually true, but the word on the street is that Google has exactly one repository stored in Perforce or something ‑‑ one repository across an organization that makes like $100 billion a year.

There’s a lot of two-man Ruby on Rails consultancies that have 100 repositories just because Ruby on Rails and the Git model encourages you to have a repository for everything you do.

If you’re thinking of charging J. Random Two Person Ruby on Rails consultancy orders of magnitude more than you would charge at Google for a product that is approximately the same value proposition, your pricing might need a little tweaking.

Keith: This is one of the advantages, I think, that Bit Bucket has over GitHub because GitHub, for their private repositories, does what you’re saying. I’m almost positive you’re not referring to GitHub in that.

Patrick: No.

Keith: They do, do that. They’re competitive pricing. You get five private repos for five dollars or something. It’s nothing. Like you said, I have 50 repos sitting around, and I want them private because either they’re client stuff or they’re small things. I hope that’s a yawn and not you viewing me in disgust. Good. [laughs]

That’s one of the things I like about Bit Bucket. Bit Bucket’s pricing model for private repos is not on the number of repos, it’s the number of contributors you have to that repo. If you were doing a project where it’s just you then, yeah, it’s just free storage.

If you’re doing any business and you have more than 5 to 10 people in a repo, then they’re going to charge you for it.

Patrick: I really like scaling on team size because team size, again, it’s a imperfect approximation for the value received from a given product. It’s a really good approximation of ability to pay simply because somebody who has 10 employees in the company, no matter what their job title is, no matter what their salary is, if they have 10 employees then the company must be spending at least $20,000 a month on something.

Therefore, kicking your price up from $50 to $250, no needle at the company, changes as a result of that. But when you 5X your prices it very much makes a difference at your company. I don’t even think it’s on our pricing page, but Appointment Reminder will kick you in from the $29.00 bucket to the $200.00 bucket if you have. I don’t know what the number is off the top of my head ‑‑ it’s like three employees or five employees or what not.

I’ve never had a single complaint about that.

Keith: And Atlassian is great, because that’s their whole marketing for the on demand service, and their normal service. They have the 10 for 10. Ten dollars a month for any product for up to 10 users. It’s great for small companies. I have exactly 10 people, actually, working for me. I have 10 people. I have six or seven of their products now, so I’m not paying $10.00 unfortunately.

As my business grows, as I get more people in my business, and I have the money to pay their salary, of course I’m going to move to the next level in Atlassian. Because first of all, they’ve been really good to me up until now. Second of all, all my data for the last five years is in there.

I’m not going to move to Red Mine, or what not, and move five years of customer data, and everything into that new system.

Patrick: It’s funny because I assume that Atlassian probably has an export feature, and…

Keith: Oh yes they do. Very good.

Patrick: …They don’t try to lock you in, or anything. It’s just the nature of all businesses. Like we were talking earlier, after you have a working system that impetus is in favor of working in things that actually matter in the business, and not twiddling around with trying to move to a different software solution, and save, what is from the business perspective, a minuscule amount of money.

Keith: The pain point has to be very high before you are willing to switch over. Actually I did just switch over one of my systems, which we’ll talk about in a bit if we have time.

Patrick: By the way, for those of you who are thinking of doing a SaaS right now, so if you’re going to follow our advice, and target a SaaS that is targeted to business, or launch a SaaS that is targeted to businesses, that last bit we just said about there are huge switching costs involved in doing anything, so if there isn’t a lot of pain you wouldn’t do the switch should inform your idea of what should make for a SaaS.

If you are talking to potential customers, and the idea, the pain point that you’re going to target is not one of the top two most pressing issues in their life right now, don’t do that. Do one of the top two things. As a business, I’m a very busy guy. I have run four products. I have thousands of customers and off ‑ag0ain employees. Things are going on. And I have way, way too little time to deal with it all.

If you’re not on my top two issue list, I’m not going to buy your thing. I could tell you, “Oh, that’s nice. It sounds like a great idea. The UI is beautiful. I love it. I might even implement it someday when I get a moment.” But the truth is, I never get a moment. I very rarely have time to get things that are lower on the priority stacks than the top two things.

So if you were trying to sell to me or to the generalized class of small business owners who I kind of represent, sell solutions to the top two problems. I wonder what my top two problems are.

Keith: I can tell you right off the top of my head what mine are ‑‑ billing and product management.

Patrick: Mine are probably getting more customers at scale for Appointment Reminder.

Keith: [laughs]

Patrick: Seriously. Someone out there will eventually crack the Da Vinci code of getting scalable customer acquisition for SaaS businesses. And that person is going to be a billionaire.

Keith: This is another thing. So you say your top two. Let’s take me for example, with my billing and project management, and top two pain points. Those are my top two. However, if someone had a SaaS and it’s like scalably increase your business, then that would be number one, right there.

Patrick: To the magic money wand. Please wave the magic money wand for me.

Keith: Exactly. If there is something that I can pay money to, and the return on actual money is greater than the amount of money I am paying, then it’s a no‑brainer. I think we had this conversation one time. Maybe it was just you and me.

We were talking about the price of accountants, and there was a very expensive accountant that we were talking about, and it saved someone a very large amount of money ‑‑ about 20K. Let’s just throw out a number.

Patrick: I’ll put actual numbers. I thought I owed the IRS $14,000. My accountant charged me $5,000 to do my taxes for the year, which is on the high side for accountants, was able to reduce that $14,000 bill to, I kid you not, 11 bucks.

Just because he had comprehensive knowledge of the US‑Japan Social Security Totalization Agreement and the US‑Japan Technical Implementation Notes for the US‑Japan tax treaty.

Keith: Apparently you were also overpaying for the last three years as well.

Patrick: Yeah. You probably could get me that money back too. You just haven’t done that yet.

Keith: After hearing this story…I have a slightly expensive accountant ‑‑ not that expensive. But people in Japan, especially in this area, who are very thrifty, would keep saying, “Why are you paying that much for an accountant?” I’m like, “Because he makes me more than I am paying. He saves me more money on my taxes than I am paying him. Therefore I am happy.”

Patrick: Right.

Keith: And a huge amount of stress at the same time.

Patrick: Oh God. I had to do taxes and those of you who’ve done taxes know that it’s like pulling teeth, and it gets harder every year for me, because my business gets increasingly complex. And b) there was the stress of knowing, “OK, there’s some way to optimize this.

“And I’m not sure what it is. Every minute that I spend optimizing my taxes is a minute that I don’t spend optimizing duh, duh, duh, increasing the number of accounts on Appointment Reminder'” which rationally should be the only thing I work on aside from all the other things I have to work on.

Keith: To pull back real quick, the number one thing you should be focusing on is things that make people money. That’s the number one thing that people will buy. If your service can make someone money, they will buy it. The number two one is, hitting those top two pain points. What are the things that people hate doing in their business or in their personal life?

I say business because B2B prints money. B2C is really F’ing hard. What are the two pain points that you can solve easily? And push for that.

Patrick: Not to beat on the anti‑B2C drum again, but to beat on the anti‑B2C drum again…

Keith: [laughs]

Patrick: With the amount of money flowing around in the venture capital world right now and also the likes of Facebook, Apple, Google, etc., who are basically driving the cost of software down to zero because it’s a complementary good for their various ecosystems that allow them to print money, I don’t think that there’s really great opportunities for small businesses to do quite so well in B2C software anymore.

There was a thriving Mac market of $30 softwares a couple years ago…

Keith: Nothing.

Patrick: …Back in the post‑shareware days, and now, even though the market is probably expanding due to the presence of app stores and whatnot, Apple has basically designed the mechanics of the app stores to encourage churn and encourage the pricing to go to zero.

Keith: You have to sell quantity.

Patrick: Because the happiest outcome in the world for Apple is there’s an app for everything and none of them cost more than 99 cents. That will allow us to sell a lot of our $600 iPhones.

Keith: Exactly. They just released Pages, Numbers, and whatever the other one is, not word. I wish it was word. No, that’s pages. I don’t know. Keynote. Keynote. For free. The latest version of Mac OSX is free. Windows is now five dollars or something like that? I don’t know if that was a limited time or not, but I think the upgrade to Windows eight was five dollars, if I remember correctly.

Patrick: Was this in one of Joel Spolsky’s strategy letters, where he’s like, “Commoditize your complements”?

Keith: Yeah.

Patrick: This is totally coming true in the software business. The big platform companies have decided, “OK. Software is now a complementary good to the service that we offer.” With Facebook, it’s the social graph. With Google, it’s controlling navigation on the Internet/advertising.

With Apple, it’s the hardware. They want to make the software experience…people say, “Oh yeah, we have a developer community. We want them to build wonderful businesses on our platform.” But they want you to build wonderful businesses by pinching your margins to the absolute bone.

Similarly, while your margins are getting pinched to the absolute bone, you’re going to be competing with people who are venture‑funded based on the huge size and growth opportunities on these platforms, who are capable of having negative margins, just because they have made money behind them.

There was a photo‑sharing startup that recently got shuttered.

Keith: Everpix.

Patrick: Everpix, yeah. They spent two million dollars to make a hundred thousand dollars. So many parts of that story make me kind of sad. One is that by all accounts, their service was actually really useful and people loved it.

But it would have been an awesomely successful business making $30,000 a month or whatever. If it was a solo founder who had built it up as a labor of love by himself and then was getting to a point of significant success, where at $30,000 you’ve covered the day job, you have a legitimate business. You’d start reinvesting into it by hiring people ‑‑ one person at a time, and then slowly ramping up.

Due to the “throw gas on the barbie” venture capital model, they had seven full‑time employees. The payroll cost was on the order was like two million dollars over a two‑year period.

It’s very hard to make the math of, “I’ll pay my employees two million dollars and take in $200,000 of revenue work out overtime.” They didn’t have the hockeystick growth curve that would convince the VCs to stake them with another four million in the hopes that they eventually got to a hundred times where they were.

Keith: I do want to put some numbers in perspective. Two million for seven people sounds like a ton of money. Over two years, it’s still 140k per person per year. It’s definitely not anything close to bootstrapping, but it’s not like they were blowing money on their employees.

Patrick: Right. Yeah. They were probably taking below‑market costs in San Francisco. There’s a breakdown of their numbers that we’ll link to in the show notes, but their payroll costs were so much…If you compare their total payroll cost number to their total salary number, it’s pretty clear that they were not getting the “standard benefits package” you would expect as a white‑collar worker.

Keith: In the San Francisco area?

Patrick: Right. They’re getting below‑market salaries. Presumably, any one of the employees of that company could have worked at, without loss of generality, Google or Facebook and gotten the famous free food, and free massages, and paid health care for you and your family, all those other things that you typically get if you’re working as an engineer.

It’s not that they were setting money on fire for salaries, it’s just that venture capital allowed them to grow the team heavily in advance of where the business was. That gamble did not quite work out.

Keith: Right. Exactly.

Patrick: It burns two million dollars of venture capital guys’ money. I’m not really concerned about that because you pay your money and you take your chances, when you’re an accredited investor.

Keith: But when you’re bootstrapped, especially like us…

Patrick: Right.

Keith: …I don’t have seven million to burn. [laughs]

Patrick: Right. Getting back to the point of where you guys as small businesses might be, if you have a venture capital funded competitor in the market, like let’s say you were in the Everpix space, today might be happy for you, actually, because you have the option to go swoop in and rescue 30,000 customers from, “Hey, your service is getting turned off? Maybe you should use us instead.”

But the two years prior to this, it’s like, “Well, there’s this beautiful, well‑designed app which has seven full‑time employees worth of effort expended into it, and it can afford to outspend me 10 to 1 on customer acquisition, because they don’t have to be profitable at it.” That’s not a happy place to be. So don’t do B2B

Keith: Sorry.

[laughter]

Patrick: Do do B2B.

Keith: Do not do B2C.

Patrick: Don’t do B2C where you’ll be competing with people who can afford to lose money on every sale and make it up on volume or, at least, will until a Series A Crunch kills their company. I don’t want to rub it in the nose of these guys. I’m sure they are great people and…

[crosstalk]

Keith: No. I think they are great people. I think it just was not really shitty luck, but just shitty circumstances for them.

Patrick: Yeah.

Keith: They did have a great product, by the way.

Patrick: It’s the mob. Venture capital, nine companies out of every 10 companies are going to fail. But, if you invest enough of them, eventually you invest in Facebook or Google ‑‑ which is a great outcome if you have a very large portfolio. Perhaps less of a great outcome if you’re confined to any one company.

Keith: Exactly.

Patrick: People often ask me about it — man, this is a tangent — It’s my first job in the industry. Should I get a job at a funded startup or should I get a job at Google, or Facebook, or whatever? Or should I do the solo bootstrapper thing, or should I get a job as programmer at a non‑technical company?”

Keith: That’s a…

[laughter]

Keith: …Hard question.

Patrick: That’s a hard question.

Patrick: We should do an episode about that. I’m going to table that discussion for a while…

Keith: Yeah, let’s do that.

Patrick: …Because it will make this podcast go six hours long.

[laughter]

Patrick: What was next on the agenda?

Patrick’s Upcoming Course On Conversion Optimization

Keith: I think we were going to talk about what is following up the Lifecycle Email course.

Patrick: Yeah. Originally, I announced I was going to launch it in August. Then stuff happened. I have a health issue. I might talk about that later. But it didn’t happen. Knock on wood. End of ~~November/early December~~ in July, I hope to launch a video course, similar in character to the Lifecycle Emails product, talking about conversion optimization and A/B testing for software companies.

This is something I did a lot of work on in my consulting days. As we’ve mentioned previously, I’ve quit consulting, but people continued coming back to me and saying, “Hey, what would you do at our page like quickly, not just to increase sales of the product or to increase the number of trials we had on a monthly basis?”

I think that’s something that I can probably have some fairly decent advice about. I do it informally for friends still and have racked up some very fun anecdotes they’re going to let me share publicly. I’m going to productize that and see where it goes. Then, probably, pitch it at the price points roughly similar to the Lifecycle Email course. I guess I don’t want to talk about too much of the plans there because I do need to have some reason for you guys to come to the landing page. [Patrick notes: You can pre-order the course here.]

[laughter]

Patrick: I’m not trying to sell you stuff, but I am trying to sell you stuff. But I’m only trying to sell two percent of you stuff. The funny thing about courses like this and whatnot it’s like, “OK. There is,” whatever is in 8,000 people on my email list 1,000 of you opted in for dedicated emails about this product and this topic in specific. Nowhere near 8,000 or probably even 1,000 folks are going to buy it.

I want to produce as much value as possible for everybody in the audience, with the knowledge that I want to spike the value creation with regards to, say, 50 to 500 of the audience who are going to whip out the company credit card and put down that 500 buck, or 2,000 bucks, or whatever it is that it eventually gets priced at.

Keith: This is a great topic for our next podcast, if our next podcast is not what we had just talked about, which is the idea of ‑‑ Nathan Berry talk about this a lot ‑‑ marketing by telling everything you know, teaching everything you know.

I think we’ve touched on this before. Not even marketing. Just tell people everything and be very open with what you do.

[crosstalk]

Patrick: I don’t know about everything, honestly.

Keith: Maybe not everything, but…

[crosstalk]

Patrick: I was a “let it all hang out” guy back in the early, early days of being a card creator. As I’m older and wiser now, there are some little aspects I would put on these “totally one hundred percent radically transparent and give everyone access to your QuickBook files.”

Keith: I was thinking more of knowledge instead of hard numbers.

Patrick: Knowledge, I don’t know. Isn’t it like some sort of picture book, storybook, written by hippies about…

Keith: [laughs]

Patrick: Have any of you ever read this book where there’s the Warm Fuzzies and the Cold Pricklies. You give Warm Fuzzies to people and, “Wow, you give a Warm Fuzzy to someone, and you magically get a Warm Fuzzy yourself.” Cold Pricklies, they don’t work like that.

Keith: That sounds really familiar. I don’t think I’ve read it, but…

Patrick: I really think there is actually some hippie book that says this.

Keith: [laughs]

Patrick: Teaching people things in the B to B context is like a Warm Fuzzy generator. You do not lose stuff by having your information out there. I’ve had consulting clients, where I was doing a presentation internally at a consulting client. They said, “We would like to take this on behalf of the people at our company who are currently not at this presentation. We’re sensitive to your desire to not cannibalize the value of your advice, so we won’t tape it if you’re not OK with us taping it.”

I appreciate that. That’s very thoughtful of you. From my business perspective, not only do I want you to tape it and show it to everyone in the company, but also, if it’s OK with you, let’s tape it and put it online. Let’s get it in front of 100,000 people. Nothing about my business is going to get worse if it gets publicized that this is the advice that I would give your company.

Keith: We should definitely go into that in detail. There’s a ton that we can go into with that.

Patrick: Next podcast then.

Keith: Next podcast. One of the things that I want to mention, going back to the A/B testing course, your next course that you’re putting out. I launched my product on Monday. I’ve been doing this, very similar consulting as you, for three years now, so conversion consulting, OK this page doesn’t work right, this is how we need to structure things to funnel.

Patrick: Can I time out here for a second, by the way. Keith and I ran consulting businesses which had different core client bases but very similar levels of sophistication involved and the advice that we would give clients. We had roughly similar price points — within an order of magnitude within each other.

Roughly similar geographic distribution of customers, Japan, the United States, wherever the work found us.

One thing that was not the same about Keith’s and I’s business was that I have an “Internet profile” and Keith a little less of an “Internet profile.”

Keith: That’s an understatement.

Patrick: I just wanted to throw this out there. OK, I am looking at Keith here and can I name a number at Keith. Keith is looking at me with a look that says “don’t name numbers.” Let’s just say his business is bigger than mine by a lot. There are a lot of people who tell me that “Consulting is great if you’re Internet famous like you are. You cannot be high in consulting unless you’re Internet famous.” You have been disproven by counter-example here.

Keith: I have no English website. The new product that I have is all in English. For my consulting, I have no English website. My only website is in Japanese and I will promise you the majority of my clients are not Japanese nor can they read Japanese.

Patrick: The primary customer acquisition channel was, “Oh, did you get your job on oDesk?”

Keith: No, that was not oDesk.

Patrick: Correct, it’s actually doing a really good job with clients and getting referrals by word of mouth. You don’t need 100 million clients to build a very nice consultancy for yourself.

Keith: Exactly. What I was going to get into there is I launched my first product. The blinders you get when launching your first product is absolutely crazy. It’s very…I don’t want to say it’s easy. I am used to going into other people’s systems, into other people’s sales funnels, and saying, “OK, here are your main bottlenecks.”

Then, one of the reasons is that I am not super close to that funnel. I haven’t been working in it for three years, five years, so the thorns stick out like you wouldn’t believe. We have been working on this product two years now.

When you’ve been working on it as long as that, you notice that the thorns don’t seem so thorny. I am looking at my own conversion pages. These are totally not optimized. I should really get a consult to come and look at these.

Patrick: You guys laugh. You get the equivalent of banner blindness when you’re working on your own products. I was once working with consulting client. We were looking at the sign up page or something and I said, “the decision X, Y, and Z that you’re making on this sign up page are clearly suboptimal. Let’s do something about that.” They’re like, “I copy pasted that from a Appointment Reminder.” I was like, “What. No, you didn’t.” I looked at the Appointment Reminder. “Oh God, you did. What idiot was in charge of this website?”

Keith: Yeah, it’s pretty amazing. A lot of my clients are really savvy, really smart people. It is amazing because the mistakes that really smart people can make with their own product, because they are so entrenched in it, are just mind blowing.

Patrick: Or there’s so much going in the business, we don’t make optimal decisions about where we spend our limited pool of resources. If I am running a business, so if you were Homunculus economicus, the rational decision maker. If you were Skynet, just decide I have 100 points of resources amongst all the aspects of the business.

You would distribute them at points of maximum leverage for the business. That would mean that everybody’s business would be 99.95 percent spent conversion optimization on their sign up page and .05 doing everything else.

All my consulting clients gave me the death glare there. All of them disagree on me on that. OK, I’ve got my little own take on things. None of us distribute our resources rationally.

Instead, we do the stuff that makes us feel good. Stuff that we think are important, but isn’t important. The day to day grind it out of the business where it’s not urgent but it has to be done anyhow, like responding to emails from people who couldn’t figure out how to click confirm in the email lists.

Doing stupid business administration stuff which we should outsource but we haven’t figured out how to outsource exactly. Bookkeeping for me until I got a bookkeeper.

Stupid wastes of time that chewed up two days of my life, I lost my wallet and so because I have not yet delegated to my relationship to the bank to anyone else, I had to call thirteen banks and say, please reissue my credit cards. Now, after they get reissued over the next week to two weeks, I will have to re‑type them into 50 systems. That’s not going to be the core source of growth for any of my businesses this year, but that happened.

[laughter]

Keith: Something derailed it.

Patrick: Sometimes its controllable, I’ve spent lots of times this year, something that I did and I’ve should have known that it wouldn’t have been worth nearly as much as working on conversion optimization. For example, in building my own drip course delivery system, like Keith was talking about, I scratch coded that in Ruby on Rails. Somebody approached me, Ryan Delk, from Gumroad, asked about maybe using Gumroad for it.

This is funny because it’s something that I would have posted it on Hacker News, but since I said it in real life and didn’t immediately download myself. I actually said it, “Oh well, you charge five percent of the sale and I don’t think it’s worth five percent of the sale.” Instead I am going to spend weeks of my time implementing them from scratch, and ruby on rails, and doing half a good a job as you guys could do it. Conversion rate optimization. The Gumroad purchasing experience is so good.

Keith: It’s the best purchasing experience that I have ever had online. I have been looking at Meteor. Sasha Grief made a Discover Meteor online course which is great. I went to buy it. The checkout experience was so nice that I emailed Sasha and said that was the best checkout experience of my life. That is how good Gumroad it. It is amazing.

Patrick: They are more like towards Amazon. Amazon has I don’t even know how many hundreds of millions of dollars of time invested into making the checkout experience, making shopping actually fun.

Keith: I think Gumroad’s checkout experience is easier than Amazon.

Patrick: I think it’s quite easier than Amazon. On the scale that people would probably use, Amazon, easy to check out with. They remember your credit card. They do all the “obvious” UX tricks that are not obvious at all. Then, there are a lot of businesses that you do business with where it’s, “Oh my God what idiot made these decisions.” It’s some junior engineer because they don’t have a UX guy on staff and they don’t care about it.

There was a hotel. I was trying to give them $4,000 towards a hotel stay. They wouldn’t take my $4,000 because they said, “you’re credit card is invalid,” I swear I retyped that thing 15 times. I finally figured out by, I kid you not, manually inspecting the F’ing JavaScript that that the thing that’s making my credit card invalid was putting spaces in between the four digits, digit groupings, on credit cards.

Keith: Was it a Japanese company?

Patrick: No, it was an American company. It was a multi‑billion dollar American company. I wanted to take my laptop and throw it out their window because of…”Do you hate your customers?”

Keith: It’s such a solvable problem.

Patrick: I think I should call them out. Starwood Hotels.

Keith: Really, I hear great things about them all the time, but not their online service.

Patrick: Apparently, the reason why I use Starwood Hotels is a mutual friend of Keith and I said, “Oh, they’ve got the best credit card/reward perk thing ever.”

Keith: And they do, they really do. They have a great perk system.

Patrick: I did lose the credit card. Hopefully it will get reissued eventually and Amex gets me the new card. The website [moans] .

Keith: Jale, that was actually a bad day. They have not realized that there’s a space between my first and middle name and inserting that space will not pull out.

Patrick: Oh, don’t get me started about names.

Keith: We’ve done this I suppose a couple of times.

Patrick: I have the entire list of 40 falsehoods programmers believe about names. It bit me again when I was getting my credit card reissued. I will go on a little rant here about life, the universe, and everything. I think we’re living in this a dystopian cyberpunk future already. We’ve don’t realize it yet because our lives are pretty much livable these days. If you don’t live in “the system,” you’re just totally F’ing screwed.

This doesn’t just affect just middle class Americans or Japanese people that often because we’re middle class. By definition, we are in the system. If you’re not in the system: welcome to Kafka. It’s so bad.

I had a bank. The bank could not accept my report of losing my credit card which was in the wallet that I lost without photo identification from me, which was also in the wallet that I lost. This is despite me being customer of the bank for 10 years.

The manager knows me by name. “I am sorry Mr. McKenzie.It’s just procedure. I can’t take this down unless you show me your card to let me that you are the same person who has been coming here in the last 10 years.” This is Japan by the way, where there are only two white people in this town. It’s either Keith or I.

Keith: People still mistake us.

Patrick: He has a beard. I don’t. Whatever, all white people look alike to us. This topic almost makes me feel Marxist. None of the people who are doing scholarly literature on it, the differences between classes, would be surprised in the least by, “Poor people don’t have photo identification on them all the time, necessarily. Upper and middle class people do.”

Middle class people don’t see that you needing photo identification to vote as a big imposition. People who are not as acculturated into the middle class might see that as an imposition. If you get broken out of the comfort zone for you, you realize how totally non-fault tolerant a lot of the systems are right now, like losing your identification makes systems is a very non-fault tolerant. Systems we designed, too.

I don’t want to sound like a Marxist act now. We can say The System with capital letters as something that is controlled by other people and that we are not responsible.

Keith: No, no.

Patrick: As programmers, we are responsible for this kind of user experience in our own stuff. As programmers, we often think that we understand what email addresses we use, what user names we typically use, what email address and password we use to sign up for a typical website. This is a highly questionable assumption for many user populations.

I will bet you that if you don’t remember the email address that you used to sign up to your own website that the experience you get is totally sucky. Just try that. Pretend I don’t remember what my email address is. What’s the recovery path for that?

For a lot of services, there is no recovery path. You go to the website, you type in the email address and password you think you used. It tells you “One of those two things is wrong. I’m not going to tell you which.” You can type stuff into that thing all day and it will not help you.

Then you go to the password recovery form and type in your email. Often, for spurious security reasons, the password recovery form will not tell you whether the email you typed in is actually an email that they have on file. Which ‑‑ by the way ‑‑ I want to punch in the face anybody at your company who made that security decision.

The reason being if I type in my email address into the password recovery form and you tell me yes, you got the email right, the email is on the way to do the password recovery. Yes, that does disclose the existence of that email address being in your database, which could leak that to an attacker.

On the other hand, if you only allow an email being in your database once, the fact that someone can use your sign‑up form and see whether the email has been used already leaks the same information. It’s just pure spite and hatred for your customers that you don’t tell them that email address is wrong or that email address is right when doing logins or password recovery.

Keith: I had a system. I can’t remember where it was. I went to get my password because I had forgotten it. I seemed to remember which email address it was. I put in my email address. It says, “We found your email address, it’s on the way.” Wait 5 minutes, 10 minutes, 20 minutes. It’s still not there.

I put in another email address that is very similar but I know is completely bogus. It said, ‘Your email is on the way.’ Whatever you put in, for security reasons, it would tell you that the email is on the way.

Patrick: I’ve been involved in systems like that before. A well‑implemented system, if you’re 100% convinced you want to do this into this, will send you an email regardless of whether you’re email is in the system or not. If your email wasn’t in the system, you wrote it correctly, it would say, ‘We’re sorry, we didn’t have any information on you.’

I was told by a security officer this is a great trade‑off. It doesn’t disclose the existence prior to proving they control the email account. After they’ve proven they control the email account, it’s not a totally horrible user experience.

It is a totally horrible user experience because you have to wait five minutes for the email to show up and then they check it. It’s like “your princess is in another castle.”

Keith: Especially with Gmail and G Apps supporting the plus. I have tons and tons of email addresses that all go to the same place, one for each system, in fact.

Patrick: I have a dirty confession to make about the plus and whatnot. If you actually read the RFCs for what pluses are supposed to be used for, it’s pretty much just for convenience for the user. I have a lot of people who might be listening to this podcast. If you think I’m talking about you, it’s not you, it’s someone else that’s listening to the podcast.

They think they’re very smart and sign up with my name plus Kalzumeus at Gmail.com to be able to filter it out if I ever start spamming them. When you try to log in to this system, you forget that you used the plus Kalzumeus and so your email address would not actually be in the system.

What I do is my log in form checks both foo@example.com and foo+kalzumeus@example.com.

Keith: It takes out the plus first?

Patrick: Right. It takes out the plus first, tests for the existence. If you provide the plus on the log in form, which no one remembers to do, it will do what you expect it to. That saves them. I have a running counter on my dashboard. The title about it is “Hacker News Users Who Thought They Were Smarter than They Actually Are.” Currently 47.

Keith: That is going into my software. That is the next feature I am pushing live. That is going in front of building fixes. [laughs]

Patrick: That’s users acting against their own interests. As programmers, we often act against our users’ interests by making processes which are not fault-tolerant for our business.

Keith: It’s amazing. It’s the same thing with blinders. If someone had written on Hacker News that I was doing this, people would jump on him that he was raw meat and they were a bunch of hyenas, honestly.

Patrick: I don’t know. I think if someone said, “I have a security rationale for this,” that would get a lot of thumbs up for them.

Keith: I think it would be very split. The point I’m saying is people are much more critical and much more able to be critical about other people’s mistakes than their own. That’s not out of spite or purposely, it’s just the blinders issue.

Patrick: The ability to consider an issue in isolation gives you a much higher resolution into the intricacies of the problems associated with it than when you’re seeing the entire freaking system at once. When you have a system that has 40,000 lines of code, your password recovery function doesn’t jump at you as the one thing that you should be working on right now.

Especially for B2B SaaS where the lifetime value of customers is, at any given point, in thousands of dollars in terms of future revenue for them. Not having someone cancel their account because they can’t figure out how to log into your system is sort of a win.

I would encourage you to make that interaction not totally suck.

Keith: Harping on the forgotten password thing, this is very interesting. I always thought who uses Forgot Password. I have all my passwords stored in Chrome or Key Pass or Last Pass or whatever.

Patrick: This is another one of those inabilities to empathize with the user.

Keith: Yes. I thought this until a couple of years ago when I was watching the logs because we were doing some purchasing testing or something. As I’m watching the logs over maybe a 20 minute span, I could see people — so‑and‑so requested password, so‑and‑so requested password, so‑and‑so requested password.

How many people are forgetting their effing password? It obviously was real users. It wasn’t going at a high rate. The usernames were completely different. People were requesting their passwords. People forget their passwords like you wouldn’t believe.

Patrick: There’s honestly some users for whom passwords, they’re done with that nonsense. They just jam on the keyboard and then every time their session gets timed out they request a password again. I’ve seen that usability report.

There was actually an open source project that was supposed to support that as your primary access tool for websites where every time you wanted a new session you would have to click a link on your email. I don’t think they got any traction. It’s not crazy.

Keith: It’s not crazy. It’s obnoxious but not crazy.

Patrick: Close to crazy.

Keith: We’re not going there.

Patrick: Not going to rat‑hole. This is the talking about making money for software business. This is not the rat‑holing about little, tiny implementation details podcast.

Keith: We’ve gone an hour and a half. We want to cut here or we have three more topics? Two more topics.

What We Learned At Microconf (In 2013)

Patrick: I would love to talk a little more about stuff we learned at MicroConf.

Keith: I would, too.

Patrick: We talked about concierge. That’s the big one.

Keith: I took, I shit you not, 13 pages of notes in the first day. It was a two day course, three day conference?

Patrick: Two day conference.

Keith: Two day conference. I have an F‑ton of notes. I’m flipping through them now. Is there anything that went out to you at front?

Patrick: I have vague memories of MicroConf here, partly because it was similar to me as the one I attended in Vegas so a lot of stuff is it’s interesting but I’ve heard it once. The stand‑out talk, for me, was probably Rob Walling going into what he did to 10x his business. [Patrick notes: Rob’s talk was videoed and is available here. Also, you should come to MicroConf if you are at all interested in bootstrapped software businesses.]

He bought a business called HitTail . It was at 1X of revenue. I’m not sure he would be happy with me mentioning the 1X out loud so just say some certain amount of revenue.

Over the course of the next 12 months, he went into a build up the product, learn about the marketing approaches, and then scale the marketing approaches series of three steps that he goes into in a lot of detail to increase the amount of revenue the product was making by a factor of 10.

It’s a kick in the pants for me because I think that would be an awesome process to go through with Appointment Reminder in the next 12 months given that I’ve pussyfooted around for the last three years or so. Also, a lot of stuff is very applicable for every Software as a Service business.

Finding out paid channels which actually work for customer acquisition for you. You test six of them, only two work. Then the two that work you throw money on them until they’re not profitable anymore at the margin. There general rule of thumb in Software as a Service that we don’t grow up knowing that you’re told at some point and find to be true is that you want to spend one‑third of your lifetime value on paid customer acquisition when you can get that, which requires you to know what your lifetime value is. There’s a fairly easy formula for that.

Your easy LTV formula: The amount of money you charge per month divided by your churn rate. That’s it. There are hardly formulas that you can talk to a CPA and learn things about like the time value of money and the discount rate and what that would do to it. Don’t need calculus, just do this simple division.

If your plan costs $50 per month, five percent of customers turn every month, that means 50 times 20 is $1,000. Your lifetime value is $1,000. Done! Spend in the $300 range to acquire a new customer. That’s typically something that you want to do.

If you spend $800 to acquire a new customer, it takes forever to get payback on that and you will have a cash flow deficit in your SaaS business. There are ways to get beyond a cash flow deficit in the SaaS business, but they’re very stress‑inducing and they make your business very, very risky.

You don’t have an iron‑plated guarantee from God that the five turn rate is going to be maintained over the course of the next 20 months. You generally don’t want to take that level of risk in a business. If you’re only spending a third upfront there is less risk involved there.

Keith: My biggest takeaway from MicroConf. I will be flat‑out honest. I am not what you would call a businessman. [Patrick notes: Hah. Yeah, we’re both totally unqualified for the jobs we do every day.] I am a designer and developer who, I think, is very good at finding holes in things. I find holes in funnels, I find holes in conversion, I find good technical solutions to solve business problems.

Managing a business such as how to make sure that everyone’s working on the right thing, make sure that people are up‑to‑task is not my strong point.

Patrick: Keith and I are both similar in this regard. Hackers in the PG sense, we like complicated systems and finding the ways they break and then breaking them to our advantage. Whereas, the mechanics of running a business is something that we just got decently good at for both of us, mostly out of having to.

Also, the fact that if you look at what you want to get from life, the universe, and everything, or from your career, this little, itty bitty slice of your life…maybe you want more time. The Foolish Adventure guy (Tim) has a great phrase for it: time, income, and mobility are three things you could potentially want to get from a career.

Time, we are both family men. We like having free time with our wives and, in Keith’s case, Keith’s little girls. Income, reasons to have it are fairly obvious. Mobility, like running your business out of Japan rather than running it out of San Francisco or New York or any of the other big tech hubs. We could potentially run our businesses from anywhere our laptops are.

In terms of getting those things out of your career, there is a bunch of levers that you can hit. Both of us, I was a programmer back in the day and Keith was a designer back in the day, that’s one lever you can push, and you will get a certain amount of benefits of working from pushing that lever very well.

There is an asymptote that you approach as you level up as a programmer, I’m going to learn Ruby on Rails in addition to learning Java, and I’m going to become the best darn Ruby on Rails programmer I could possibly be. Don’t get me wrong, that is a very successful career path for a lot of people.

There are a lot of folks who are uncomplicated programmers. They just program up to instructions that were given to them. They work for Google for 50 or whatever hours per week and get paid very well for doing that and love their jobs and lives, et cetera.

Keith: You do have to look at it like that. You say they’re told what to program. They could want to be a system designer at Google. It’s still the same thing. There’s a very different thing between yes, I want to work at the best of my field or I want to take that out and grow my own business. That’s the crux.

Patrick: Right. The trick for both of us is we took some level of ability with our “core skills,” the stuff our employers were paying us for back in the day, and then drizzled on a wee, little bit of the minimum viable businessman on top of the core skills. I use the word ROFLstomp when other people do it. I’m not sure I’m comfortable saying we ROFLstomped. Let’s go. We ROFLstomped capitalism, basically.

Keith: Honestly, if you had said three years ago, five years ago that we’d be in this position, I would have laughed like you wouldn’t believe.

Patrick: When was three years ago? 2010. January 2010 I think both of us put together maybe $5,000 a month at our jobs, our Japanese salaryman jobs.

Keith: Together? Yeah.

Patrick: If you had balled the two of us together, $5,000 a month at a Japanese salaryman job probably working 70 plus hours a week each.

Keith: Something like that, yeah.

Patrick: Pretty miserable. I was very, very miserable. Keith was…

Keith: I was having days that were less miserable than others, but not many.

Patrick: Don’t become a Japanese salary man. We’ll talk about Japan, the universe, and everything in another version of the podcast.

Keith: Later.

Patrick: Don’t become a Japanese salaryman. Our careers had a fairly nice trajectory over the last three years, largely from this combination of the core skills we bring to the table and increasing that core skill set and then marrying it to the understanding of business and running things on top of it.

Even without necessarily being Harvard MBA levels of adjusting capitalization tables and whatever they teach you to do at Harvard MBA.

Keith: We have no idea what they teach you at Harvard MBA.

I won’t say that’s holding back our business because obviously not, but it is holding back growth in some aspects because I don’t know how to manage people other than the standard this is how I would like to be managed and this is how I managed my development teams in the past.

The idea of managing an entire company where I’m managing not only projects with the developers but also how’s billing going, how’s payroll going. Have you talked to the accountant about reducing our taxes somehow?

Patrick: This is one reason I still don’t have employees, just because I’m not ready for that level of responsibility. All my friends who have gone to multi‑member consultancies — Keith being one of these — say you get 10 employees together and suddenly you’re responsible for $100,000 every two weeks to make payroll.

If you do not make payroll, people’s families starve. Not going to do it. Not ready to do that yet.

Keith: Exactly. Actually, at my old job they offered to put me as vice president of the company, and I said, “I am not willing to do that because I do not want the success of this company on my shoulders. I would rather go out on my own and do it.” I think I’ve done fairly well.

Anyway, going back to what we wanted to talk about with MicroConf. I feel so bad about this because I forget the two of their names. The TropicalMBA guys. I think it was Dan and…

Patrick: Dan and Ian.

Keith: Dan and Ian, thank you.

Patrick: From formerly the Lifestyle Business Podcast. Now it’s called Tropical MBA Podcast. Very good podcast, by the way.

Keith: They were amazing. Everyone was amazing, but they spoke closest to me because they were talking about growing a business.

Patrick: Can you believe that was their first speaking gig ever?

Keith: Really? No, I did not know that. It was amazingly good. They were just talking about how to structure your business so that you don’t have to deal with minutia. They gave an example that really hit home to me. Steve Jobs, complete control freak, as much of an anal control freak as I am, no one eclipses Steve Jobs. Anyone who has worked with him, anyone who has read anything about him would probably agree with that. How does someone with that level of detail into everything be able to control a company with how many thousands of people? 5,000, 10,000. I don’t even know.

Patrick: Apple has X tens of thousands of employees. A lot of them are retail workers in the US now, but there’s let’s say 10,000 engineers and knowledge workers at Apple.

Keith: Let’s just say 10,000.

Patrick: 10,000 knowledge workers.

Keith: How would someone with that amount of microscopic detail‑orientedness be able to manage that? It’s obvious. He doesn’t manage it. How would things get done to his specifications? The answer is that ‑‑ and what Dan and Ian said ‑‑ is he only interacted with I think it was seven people in that entire company. Out of 10,000 knowledge workers, he interacted with seven people.

Those seven people were essentially extensions of him. They were close to him. They understood how he thought. They understood what needed to be done to move the company forward in his vision or in the company’s vision.

Dan and Ian called those types of folks lynchpin employees, essentially people that you can delegate an entire section to, an entire job to, who are able to think on their own for their own stuff and move the company forward in a solid, single direction.

That spoke miles to me because it is so difficult to find people like that, both who you can trust almost implicitly and who can be given the managerial task of managing another 1,000 people with their own lynchpin employees.

Patrick: And who also want to be employees. One of the problems I’ve heard about on the grapevine, as it were, is that the kind of people that do really well at a) I need a combination of the responsibility to bring this project in without much management from above and b) I also have to be expert enough to manage the people below you and think on your feet and whatnot.

Those kind of people exist. They’re called entrepreneurs. They start companies and they often don’t aspire to being the number three guy in charge of server architecture at a tech company.

Keith: Exactly. Exactly.

Patrick: Figuring out how to identify, groom, and hire those folks is a useful skill to have if you are trying to build up a large company. It wouldn’t be too useful for me.

Keith: That was my main point.

Patrick: That was your takeaway from Dan and Ian’s. The one I got from it was having repeatable processes for just about everything in the company.

Keith: Yes. They call them SODs. In my business, we always call them SOPs ‑‑ standard operation procedures.

Patrick: This is something I pulled off their podcast, actually, a couple months ago. It made my life much, much easier because it allowed me to get one task that’s recurring and obnoxious off my plate. Shoot. Broke a rule from my SOP. I should have never called customer support “obnoxious.”

I love my customers. I love my customers.

I have been supporting Bingo Card Creator as literally the only person who had ever sent an email with regards to Bingo Card Creator from July 1st, 2006 to approximately July 1st, 2013. That is eight years of handling all the customer support load.

Keith: I want to make a quick disconnect. Patrick always talks about how he always talks about emailing the support and it’s like the Blue Google or the Green Google, ha, ha. There’s a $40,000 a week consultant [Patrick notes: Nah, my last rate prior to the recording of this podcast was only $30k.] answering emails from 50 or 60 year‑old elementary school teachers, who don’t understand what the Blue Google or the Green Google is. I just want to throw that out there real quick.

Patrick: It wasn’t a huge amount of time, but it was meaning it to be shackled to a machine every day to answer the email within my not quite promised, but want to get to emails within 24 hours generally, or 24 business hours. Stopped doing email on weekends, so it was one of the best decisions ever.

If you send an email during the middle of the workweek, I want to have a response to you the next day, your time, in the workweek. That’s my desired level of service for this product.

In 8 years, I probably answered 10,000 emails about Bingo Card Creator, which means literally hundreds of times that I’ve explained to someone how to reconfigure a printer, or how to use the, “I forgot my password button,” or, dot‑dot‑dot. Dealing with the technical support issues of the largely nontechnical customer base with the product, which, while it’s been improved over the years, is not the world’s easiest to use.

My skills do not generally reside in making wonderful, easy‑to‑use products. Yes, I’m done with that! The way I’m done with that is, I have a standard operating procedure document, which is two pages long. The first page is a statement of principles for the company.

My principle is that, and I joke about it, but I genuinely do love my customers. I got into the business in the first place because I have awesome respect for teachers, and want to make their lives easier, yadda, yadda. I would always rather satisfy a customer rather than having their money if those two ever come into conflict.

I have a hair‑trigger on the refund button. If they say a minor issue caused them to miss the class periods that they wanted to do the event in, I’m very sorry for that. I’ll very happily refund them for that.

So my SOP just states my 12 principals, I have a roughly general nature about that. The second page of the document was, “Here are my top 10 customer support issues that I’ve dealt with for the last eight years.”

I gave these to my virtual assistant who I hired through Pepper. It’s named after Pepper Potts, by the way. don’t tell Marvel that or there’ll be a hammer of Thor dropped on their heads.

Anyhow, I gave it to my virtual assistant, and said, “OK, here are the general principles I run my business by. Here are 10 specific issue that customers often come to me about, and here’s Snappy which is the system I use for ticketing.” It’s a very good way to have a lightweight, low ceremony way to share an inbox, basically.

“You are now tier one customer support, which means if someone has an issue, that you are the first point of contact. If it’s one of these 10 issues, deal with it according to the rules I’ve set out here.”

“If it’s something like they need a refund, then tell them, “Look, Patrick will process you a refund within the day,” and here are a couple of words to say that.” But one of my principles is, “We do not copy‑paste stuff. We are humans talking to humans,” because I’m very big on that.

I gave it to my virtual assistant. I said, “OK, this document is a living document. If we discover that there is an eleventh most common customer issue that you can deal with using our tools, or we can build you a new tool to deal with, we’ll add that to the document such that the business grows over time and that this can be…If I need to get a different virtual assistant or a different employee doing this in the future, we can have them start where you left off.”

Then, for the first couple of weeks, I sat in when she was doing these tickets. She would write the response to the customer and then I would take a look at the response she had written, and say, “OK, Sugar.” [Patrick notes: For avoidance of doubt, that is her name.]

“Sugar, thanks for writing this response to the customer. I have a bit of feedback for you on how to handle this situation in the future. Great job.”

Then, after that, it was just passive monitoring for her. “OK, Sugar is pretty much keeping it up.”

After that it’s no monitoring. I don’t even know how many tickets we’ve dealt with this week. Honestly, unless something happens, I don’t care because she’s perfectly capable of handling that by herself. Apparently, she rather likes it. The money works out very well for her and very well for me, so yay.

I now went down from maybe 20‑30 issues on Bingo Card Creator per a week to 2‑3, which also means that I can afford to often not check email for a day because, probabilistically, there will be no email that got past Sugar, which is nice. This is something that I’m now thinking of, “OK. What other stuff can I systemize in my business?”

Keith: It’s interesting. As a consultant, there’s a lot of the day‑to‑day stuff that can be systemized. Dan and Ian gave the same thing where they said…They were posting a blog post or something. There was some part of the business where they were like, “Only I can do it.”

They had a consultant come in, who was good at writing up these SODs. He says, “Well, there’s 12 steps. You can replace this entire thing, all your thinking, in 12 steps.” He wrote out the SOD, and he says, “Give this to anyone, and they can reproduce exactly what you were doing.”

Patrick: Yeah. This is a cycle I have gone through with a lot of people. In the beginning, for any sort of new operation our company is doing, it’s just you throwing stuff at the wall and seeing what sticks, using your magic entrepreneurial powers of deduction. Then, after you figure out what sticks, you describe some theory of why that works or some process of how it works.

You operate on the process and see if the process still works without you using constant levels of supervision or decisionmaking authority on it like, “Is the process at least as good as me?” If the process works, then you have options of giving that process to another person or maybe totally automating the process.

Keith: Exactly.

Patrick: Then, you move on to a different high‑leverage area of the business, and throw stuff at the wall, and see what sticks.

Keith: Like you said with Pepper, ‑‑ Pepper and Sugar, I love that. [laughs]

The documents are living. This isn’t something like, “Now that I have said it, we can never change it. This has to be the way it works.” If things aren’t working with the person who’s in charge of it or they know of a better way, then you change it.

Patrick: Yeah.

Keith: You find the better way to do it.

Patrick: This is one of the nice things about not rushing to automate things.

Patrick: I’m a software guy myself. I know we love automating stuff. There’s a lot of issues where it’s like, “OK. My first inclination for how to…” What’s an actual thing that I would think should be automated?

Keith: How about updating ‑‑ this is something I do a lot ‑‑ a registration page for a once‑a‑month webinar?

Patrick: OK, that sounds great. Let’s make a data description language or a DSL, a domain specific language, for generating a one‑time webinar pages which we will all add a cronjob to automatically update this thing, yadda, yadda, yadda. Wait, wait, wait. We’re going to spend 10 hours of work, which we could be doing optimizing landing things and whatnots.

[crosstalk]

Keith: Optimizing so many of your pages.

Patrick: The high‑leverage stuff in the business. Instead, we’re throwing it into automating this thing that really doesn’t take all that much time or require all that much brain effort. Rather than doing that, we’ll just describe the process for doing it, then hand it off to somebody who has much less pressing demands on their time than we have.

Then, if we need to change that procedure, it’s as simple as changing our minds and changing the document.

Keith: Instead of rewriting code.

Patrick: Without us having to rewrite code. I default to not rewriting code because code, after you’ve written it, it’s nice that it keeps executing for forever. The downside is it keeps executing for forever. You need to maintain it.

There’s going to be some sort of technical debt that you built into it. You’re going to need to make sure that system stays running for the rest of your life and the security patches, yadda, yadda, yadda. There’s definitely times to write code. Don’t get me wrong. We’re both from in software business, but I try it with people first.

That’s another reason it counts to do concierge onboarding, by the way.

Keith: Exactly. It’s like, “What is the amount of time it would take for you to create an import function, or to create guiders, or all that? And what is the amount of cost it would take for one of your support staff to just take half an hour to walk everyone through?”

Patrick: Or, in the early days of a product, if you’re not sure, “Should my concierge onboarding be me hand‑holding them for an hour through the entire setup process? Should I do the setup process by myself? Should I just ask for their data and import that for them? Should it be me doing a guided tour through only the demo of the product but not actually using their data? Dot‑dot‑dot…What is the optimal way to get people through this funnel?”

In the early phases of the product, building those things out in parallel would be a whole lot of engineering expense, whereas just trying it, like, “OK, I’m going to take five customers and do them through my first idea. I’ll take five customers, do them through my second idea, take five customers, do them through my third idea,” and see quantitatively and qualitatively, was the experience useful for the customers? Did they understand what was going on?

Does it seem to be working for me? And then for the stuff that is working, invest in automating that or making tools to semi‑automate it. The mid‑touch. Oh, I love the mid‑touch.

Keith: The mid‑touch. Yeah.

Patrick: I think we’re coming up on almost two hours.

Keith: We’re two hours in right now.

Patrick: That seems to be a good point to cut it off.

Keith: If you’ve stayed with us this long, we applaud you.

[applause]

Keith: That was not canned clapping, by the way. That was actually us clapping.

Patrick: We are still the lowest‑ranked podcast on the Internet with our regular every three months or so release cycle.

Keith: We’ve been doing this for about two years now and I think we’re on episode eight.

Patrick: Yeah. There’ve been some less‑official ones in the middle there, but yeah…

Keith: Yeah.

Patrick: …Episode eight or so. Anyhow, thanks very much for sticking with us, guys. We’ll see you next time, same bat space, same bat channel. You can check out Keith’s product, Summit Evergreen at summitevergreen.com.

Keith: Yup.

Patrick: My email list is at training.kalzumeus.com. Good stuff coming to that in the near future, including about my new product launch, which will, knock on wood, happen at the end of November, early December [Patrick notes: July! Seriously, and sorry for the delay. Health issues happened.]

Patrick: Thanks very much. Thanks very much for sharing your time with us and we’ll see you next time.

Keith: All right. Have a good day. Cheers.

Conversion Optimization in Practice: Baconbiz 2013 Presentation

Posted on May 12, 2014 by Patrick in ab-testing, microISV

I’m preparing for the BaconBiz conference as we speak.

Brief plug: BaconBiz is one of my two favorite conferences for small software/etc companies (roughly similar to mine), the other being Microconf. You’re too late to get a ticket for 2014, since they’re sold out, but I’d highly advise coming to it if you have the opportunity in the future, if this sort of stuff interests you. You can sign up to get a reminder email about it for next year.

My talk at BaconBiz 2013 was all about conversion optimization for SaaS companies. Most of the time when I do a talk like this I end up talking either in generalities or about one of my own products, since consulting clients very rarely let me spill all of the beans. This time, though, Amy and Thomas of Freckle let me walk through, effectively, a mini-consulting engagement with the deliverables crammed into 30 minutes.

Amy and Thomas subsequently made changes to the Freckle marketing site partly informed by the advice in this presentation. Ask Amy how that worked out, but suffice it to say the improvement pays for an awful lot of bacon. My quick eyeball on their numbers is that Freckle has grown monthly recurring revenue by more than 20% since the redesign, which I would partly attribute to organic growth and partly to the redesign. (Incidentally: I think their hybrid “standard SaaS”/long-copy page is a style which more SaaS companies should experiment with.)

Brief plug the 2nd: If you’d like to get some free advice from me about conversion optimization for SaaS companies, and also hear when my course on that topic finally ships, you can get that here. Expect about two emails a week for the next few weeks. (Aside: About 10k people separately get an update once or twice a month about eclectic topics about making and selling software. If that is interesting to you, get it here.)

What You’ll Get Out Of This Talk

Practical advice for conversion optimization at a SaaS business.
Examples of front-page H1 copy to help you beat your main business adversary: the back button.
How to redesign a pricing page to continue the sales conversation and overcome customer objections.

As usual for talks, I’ve had it transcribed, which you can find below the video and slides. Hat tip to CastingWords. I just discovered you can give them a e.g. Vimeo URL and they’ll slurp the audio out of it, which saved me from doing my usual hack around not having a usable MP3 file, which was to push Play on my computer and then record the audio output.

Conversion Optimization in Practice (Video)

Conversion Optimization in Practice (Slides)

Conversion Optimization in Practice (transcript)

[music]

Amy Hoy: Has everyone heard of “Bingo Card Creator“?

Audience: Yes.

Amy Hoy: OK, great.

Patrick McKenzie: No.

[laughter]

Amy Hoy: For the few of you who did not raise your hand and go, “Yeah,” this is Patrick McKenzie, who came from Japan to be here with us today ‑‑ and also his friend’s wedding which must not have had anything to do with it ‑‑ who started his independent software selling career with a bingo card creating tool for teachers.

Because that was such a tough market, he became an absolute wiz at SEO, automatic content marketing, all aboveboard types of stuff, and conversion optimization. Now he’s using that to help all kinds of other people also earn more money, including himself.

What was the quote that you had about your lifecycle emails that someone said how much did one email make them?

Patrick: There are a few different quotes I could give there. One company used not my lifecycle email course, but the marketing material for the lifecycle email course, forwarded it to his director of biz dev, and the biz dev guy closed a $500,000 sale two days later.

Amy Hoy: From the free content you gave away to promote your course?

Patrick: From the sales pitch, yeah.

Amy Hoy: That should give you an idea of the expertise this man presents. Give a warm welcome to Patrick McKenzie please.

[applause]

Amy Hoy: Thank you.

Patrick: Hideho everybody. Thanks for having me. I want to start with the question, “Why are we here?” There are a lot of ways we can interpret that question. There’s the classical theological one, but I only have 40 minutes, and I’m not going to rewrite the previous 2,000 years of western civilization in that time, so we’ll go to two smaller reasons. One, is what incredibly unlikely series of happy events happened such that I am able to come here today?

I want to give a shout out to a gentleman named Brian Plexico. Have any of you ever heard of him? Brian Plexico, back in 2006, released a skeet‑shooting score application that none of you have ever heard of. It required you to take a laptop out to a…Where do people do skeet shooting? I don’t know. It’s illegal in my country…out to the range.

You take your laptop out. You project things that look like birds, then project things that look like bullets towards the birds, and if they hit the things that look like birds, you get points. Apparently it’s difficult for people to count on one hand and shoot shotguns on the other, so they needed skeet‑shooting scoring software.

Brian Plexico released this skeet‑shooting scoring software. He sold $2000 of it, which the world did not long note or remember, but Brian Plexico wrote a blog post about this that I read in 2006.

This was the first time it pinged onto my consciousness that wow, you could actually run a software business as a side thing, not have to quit your job, not have to go to the Valley and get venture capital, and not have to be the super uber‑genius that Joel Spolsky is. (I’d been reading his blog for a while.)

A real normal person, just like you, could do this. So why do I come all the way from Japan to BaconBiz to talk to all of you guys? Because I feel indebted to that one blog post, and also because I think that we can all help each other realize that this is an achievable thing. Amy builds me up as some sort of Internet celebrity, or genius, and I won’t lie, I am kind of intelligent but this is…

[laughter]

Amy Hoy: Humble too.

Patrick: Right. This is absolutely something that all of you guys can be doing. I think there’s two audiences in this talk, well, one audience, but there’s people at different stages of your business career inside of it. Some of you might not have launched your product yet. Some of you have businesses at varying levels of success and are looking for what gets you to the next level.

We’re going to start the talk with a bit of the background of my business to give you guys who think that if you haven’t launched yet, you might not think you can do this, to tell you that you absolutely can. We’ll go into the practical stuff for those of you who have businesses that you can turn around and use in your businesses tomorrow.

Most of it’s going to be specific to SaaS businesses, because that’s really where my heart and soul is, but for the info product stuff, we had that talk earlier, and we might talk later about it in that little interview thing.

Anyhow, if you want to follow on your phones that you aren’t using, it’s #baconbiz on Twitter.

Bingo Card Creator. Who knew, right? Bingo Card Creator has several hundred thousand users, largely gathered out of the United States, three million or so elementary school teachers.

I’ve gotten several thousand paying customers over the years, and it all started with a one thousand line of code Java Swing app back in 2006 that I put together in seven days of work, and a budget of $60, of which I spent $56.83. [Patrick notes: I think it was actually $57.83. Ack, the tyranny of arbitrarily precise approximations!]

Largest single line item on the budget was faxing a contract to eCelerate in America. The 7‑Eleven charged me $17 for that. If any of you are thinking that you don’t have enough money to start a business, you totally do, but if I was going to redo it again, I would spend a little bit more money on getting a professional web design, rather than trying to hack it together myself. That’s neither here nor there.

The reason I want to talk about Bingo Card Creator very briefly is to show that I absolutely did not start out as overwhelming Superman. You can see this is my…Is this the red button, green button? Green button does not flash onscreen. All right.

[laughter]

Patrick: [laughs] Laser pointer view 1.0. You can see salaries in Japan are not so awesome. [Patrick notes: The algorithm for most businesses near Nagoya for full-time engineers works out to, essentially, $100 of salary per year of age per month. Thus, if you’re 30, you can expect a salary of roughly $36,000 a year, plus the usual white collar perk suite. This is slightly complicated by the fact that Japanese salarymen often receive biannual bonuses of approximately 1.5 times their monthly salary, but that’s immaterial relative to the difference between Japanese pay scales and e.g. Silicon Valley (or Chicago) ones.]

The first year of Bingo Card Creator, I was planning on eventually selling as much as $200 a month. I blew through that thing in the first month, but it basically did not move the needle at all.

I just started trying things out. I learned about A/B testing. I learned about search engine optimization. I learned about AdWords. Over the years, as a part time, little five‑hour‑a‑week hobby, I had to quit World of Warcraft to run this hobby. I used to run a raid guild of 60 members or so, which is the largest enterprise I’ve ever been in charge of.

[laughter]

Patrick: It was a whole lot more work for much worse loot, let me tell you. [Patrick notes: After approximately 3 years of 20 hours per week I think my main WoW character would have been worth about $2,000 on the open market. Don’t go into video games for the money, kiddos.]

[laughter]

Patrick: I just gradually grew it to the point…Some time in here, my day job transitioned from a very cushy job at a prefectural technology incubator…where I was expected to translate English for people who never needed English translations done, so I spent a lot of time reading on the Internet…to working as a Japanese salaryman, which means that the company owns you body and soul and you spend 12 to 16 hours a day, crash overnight, and then do it again the next day.

I was really not feeling it. Then about 2009‑ish, I had a big insight one day. I had spent something like 19 hours at the office. I got out of the office at 2:00 AM, ate dinner at the all night Denny’s. I checked my email, because Bingo Card Creator emails could happen at any time, on my Kindle because we didn’t have iPads back in those days.

I went to sleep for five hours, woke up the next morning and checked my email again prior to heading out to the office for another 7:30 meeting the following day. I realized that I made more while sleeping with Bingo Card Creator than I had at the 19 hour day at the office, even counting overtime.

I was, “Why am I still in this day job anymore?” I couldn’t come up with any good reason for that, so I quit.

What happened since then? In 2010 I launched a new product called Appointment Reminder. I made one big mistake about this, which I want to tell you all about.

Everybody knows Peldi, right, the gentleman behind Balsamiq Mockups? Peldi and I have been Internet buddies for a while. I knew him before he was Internet famous, and he knew me before I was Internet famous. I told him about my idea for Appointment Reminder which makes appointment‑reminding phone calls and SMS messages and emails to the clients of professional services businesses.

He said, “Is it your passion in life to optimize the scheduling of small doctors’ offices?” I said, “Oh, heck no, but it’s going to be a great business.” He’s, “Dude, stop now, stop now. Do not go forward. You will get bored, and this will be much harder than it needs to be.”

I did not listen to Peldi. I encourage you all to listen to Peldi.

[laughter]

Patrick: Find a community. Find a problem space. Find an industry that you are really passionate about. We just discussed this in 4 minutes and 14 seconds, several years here, but if I had not been enthralled with a certain aspect of the business, that’s a lot of time.

I’ve been doing this for eight years now. If you get bored of it, then the business dies effectively. Pick something that you can really sink your teeth into. The thing I sunk my teeth into in Bingo Card Creator, I used to be a teacher. I love teaching. I love helping teachers, but it is not my passion in life.

The thing I became passionate about with Bingo Card Creator was the mechanics of optimizing the business. That’s what we’re going to be talking about a little later today. Find something you can be passionate about. I really recommend it.

Since quitting the day job…by the way, I don’t show Appointment Reminder numbers on these graphs just because I nurse “maybe I will, maybe I won’t” ideas of someday taking investment for Appointment Reminder and it’s better to keep it under your belt. That’s not English, is it? Sorry, I’m from Japan.

[laughter]

Patrick: Anyhow, Bingo Card Creator grew while I was still at the day job. After I quit the day job, people who had heard of me on the Internet, because I had been blogging over this entire course of time, said, “Hey, all that stuff that you’ve learned about marketing software products for Bingo Card Creator seems to be pretty generalizable. Why don’t you try it with our products?”

Joel Spolsky memorably said, “Oh, Patrick’s become something of an SEO guru, learning about bingo cards. Now that he’s applying it to a product that isn’t totally bullshit, it will be pretty useful.”

[laughter]

Patrick: Soft spoken as always, right? I did a little work for Fog Creek, and that seems to have worked out for both parties. I did consulting work for a few other well‑renowned software companies and the WildBits folks among them. Anyhow, I had a few pretty good years of it. 2012 was the best year of my life for one major reason. I got married to Ruriko McKenzie over there.

[applause]

Patrick: This is a totally self‑indulgent slide, because that is the best I will ever look.

[laughter]

Patrick: I always want to take a minute out of speeches like this, especially I think it will connect to this audience as bootstrappers. One of the reasons we get into this versus doing the corporate wage slave job or trying to go to Silicon Valley and roll the dice is that we want to be able to construct the life we want to be living.

Your business will be important to your life. Your career will be important to your life, but it isn’t nearly as important as the rest of your life, as your family, your friends, being involved with your community, et cetera. Definitely do keep a balance there and remember that it’s a means to the end. It isn’t the end itself.

The more boring part about 2012 was, while I took three months off of work and did nothing but answer emails once every three days or so to plot the wedding things because when you do weddings in two continents it’s kind of blech.

If you have to do that, you have to do that. But if you don’t have to do that, I strongly suggest not doing it. [laughs] I took three months off work. I stopped development, stopped answering requests for proposals. I stopped anything other than routine email support and sales exploded.

Why? There is “a season to sow and a season to reap.” The previous years I had been sowing automated systems that worked without my involvement. In 2012 they started clicking together through some efforts of my own but mostly just natural growth. We’ll talk a little about them later.

2012, pretty good. By the way, not the main focus of this point, but you can see the main ingredient in the revenue mix last year of these three products was the consulting. My current revenue for consulting in 2013 is zero dollars. I quit it recently.

Ask me why later, but at the party when I’m not on camera, because the consulting client that drove me out of consulting has a legal department which is better funded than the North Korean military and twice as vicious.

[laughter]

Patrick: I think there are three stages for a bootstrapping business. Some of you are probably in all of them right now. There’s the stage where you don’t have a product or customers yet. You don’t really have an audience. You might not even have an idea of where you want to take it.

Then there’s the point where you’ve got a product, you’ve got some customers, but it isn’t quite hitting your financial goals yet. If a goal in your own business is to quit the day job and transition into your product full time, you might be getting, say, $2,000 a month of sales. If that’s not enough for you to live on, you want to get it to the next stage.

Then the third stage of a bootstrapping business is where it’s achieving all of your financial goals and the big question for you is, “Where do we take it from here?” My advice is largely going to be specific to the people who are in stages two or three.

If you don’t have a product yet, don’t worry anything about A/B testing. Don’t worry anything about conversion optimization. Your only two tasks are to talk to customers and produce something for them.

If you don’t have 3,000 visitors a month, I will tell you, your entire A/B testing strategy is throw out everything you ever read about A/B testing. Don’t even bother reading blog posts about it. Talk to customers. Ship stuff to them. Sell it one copy at a time until your teaching and your email lists and your publishing content have gotten you to 3,000 visitors a month of recurring traffic. Otherwise it’s just a waste of your time.

For folks like the WildBits, with large amounts of traffic or even folks who just have modest amounts of traffic, you can get a couple hundred visitors to routinely come to a blog post, then you can start thinking about your conversion optimization strategy.

I was going to talk in very hand‑wavy ways about, “You should improve your calls to action and then you can improve the colors of your buttons and whatnot.” But I’ve been at the presentation a lot before whether it’s delivered by myself or other people, and it feels boring without an actual business to focus on.

I’ve presented on my business probably about 30 times over the years, and, honestly, I’ve said almost everything I’ve ever cared to say about Bingo Cards. I thought I’d pick another business and show you what we would do with that business to optimize it for them.

Amy and Thomas were graceful enough to volunteer Freckle, so we’re going to be using Freckle as a way to dive into the meat and nitty‑gritty of optimization. What are we optimizing for? We’re optimizing for a formula which I miscopied. Sorry.

[laughter]

The Fundamental SaaS Equation

Patrick: This is the fundamental SaaS equation. Traffic, your revenue, your profits, whatever you want, but the main driver for the business is the sum over any space you want to think of, like over all the customers, over all the marketing channels, over all the whatever.

The amount of traffic you get times your conversion rate through your funnel times…This is the bad part…your average revenue per user, which means what you charge the average person on a given period of time. I wrote one minus churn here. It’s actually one minus survivorship which equals churn. You can copy down that one if you need to.

The agony and ecstasy of running SaaS businesses is, if you can easily manipulate traffic, that excuses everything else. If you are really good at search engine optimization, you need absolutely no other skills to successfully run a SaaS business, as Bingo Card Creator might prove.

That one is really hard to explain, so we’re going to be talking more about the conversion rates and the other aspects here, a little less about churn in this presentation. Unfortunately, conversion rate, while it is easily within all of your capabilities to optimize, it takes a couple months to see the results from.

There is something that you can do to average revenue per user which tends to produce easy and obvious results, so I have to put it in every presentation. It is “Charge more.”

When I was flying from Nagoya to Philadelphia…to Detroit, there was an intermediary stop…my iPhone ran out of batteries. I told my wife, Ruriko, “My iPhone is out of batteries.” She looks over at me and she’s, “You should charge more.”

[laughter]

Patrick: [laughs] Man, I’m a broken record on this one, but I’m a broken record because it works so well. This is the launch pricing for Appointment Reminder. It launched at $9, $29, $79, and an enterprise plan which was basically “Call me,” because I couldn’t actually provision that account.

I changed that later to $29, $79, $199. I got rid of the $9 plan, because, like we talked about earlier, your lowest paying customers are pathological. They have higher churn rates. They have unreasonable expectations for your product.

No lie, I had a dental office which was on the $9 plan which asked me to cut them a refund check because they hadn’t used 60 percent of their quota. So I could please send the dental office a check for $5.40.

I asked the office manager, “Has the dentist ever written a check for $5.40 to anyone for any reason if they were unsatisfied with their teeth?” She was, “No, that’s crazy.” I was, “Yes, that is, indeed, crazy.”

[laughter]

Patrick: I no longer solicit the business of anyone who wants to pay $9. Something that I was routinely hearing when I was at the $79, $79 corresponded to 300 appointments a month. A lot of people said, “Wow, it only goes up to 300 appointments a month. It can’t possibly handle 500 appointments a month,” which is the way non‑software people think of software.

Everyone else in the room is, “That’s clearly a variable he has hard coded somewhere. He can bump it up to any number he wants less than like a million without changing anything else.” You are correct, but you think in a way that non‑software people don’t think.

Just adding the $200 option that went up to $1,000 did this to my revenue. Here’s the month before I added it. Here’s the month where I added it. Here’s the month after. This is arbitrarily scaled to $1 equals my revenue back in May of 2011.

It added basically two full increments of my revenue with just that one change. That was in a two month period where I was doing literally no other work, because it was during my wedding/honeymoon. I was not even checking my email that month.

My designer just pushed that to the page, and then, bam, revenue exploded. It even exploded because…Actually, August 2012 was the purge of August. I went through my accounts and closed the account of anybody who hadn’t actually used the system in a year because I hate taking money from people who aren’t getting value from things. It lopped off 25 percent of the accounts.

By the way, non‑use of SaaS services is a real thing. Any of you who run SaaS companies are going to have to deal with how you want to treat that. My thought was, “I’ll close the accounts and then reinstate them if anyone complains.”

Surprisingly, some people did complain. “Whoa, dude, why did you go closing my account like that?” “Because you hadn’t logged in in 16 months.” “Well, I was getting around to it.”

[laughter]

Conversion Optimization for Freckle

Patrick: We’re going to do the 25‑minute consulting engagement for Amy and Thomas’ Freckle product. Time tracking used to focus on freelancers. These days it’s focusing more on firms.

Amy Hoy: You could run over time.

[laughter]

Amy Hoy: Free consulting. Keep talking.

[laughter]

Amy Hoy: Yes, but also I’ve been his friend today. We love you. Keep talking.

[laughter]

Patrick: The first thing we do prior to digging into what we can optimize is to get a clear sense of what the funnel is for the business. The funnel for their business is the same as the funnel for virtually every other SaaS business.

There’s some notion of getting the prospects into the free trial, “pre‑signup stuff” we often call it, getting the trialers onboarded into the product, which means getting them to the point where they have successfully used the core interaction once. For Freckle, they’ve actually logged time at least once.

Getting a trialer, they’re not just onboarded, they’re engaged with the product, where they’re actually getting value out of it in their day‑to‑day business life. For Freckle that means they have transitioned their sole source of truth for time tracking into Freckle, and then turning those trialers into customers.

Everybody knows what funnel means, right? There’s some big pool of prospects at the top and then, as each step goes on, you’ve got less and less people that survive through the funnel. Then you get some happy event at the bottom called conversion.

Each of those stages in the funnel is actually a little funnel in isolation. The pre‑signup step, where people are not in the free trial yet, there’s multiple stages that they can go. They can go to the front page, look at the plans page, and then go to the signup for the free trial page. Only if they click through that are they in the trial so there are funnels within funnels.

We’re going to be looking at those funnels within funnels in a bit of granular detail. Why do we do this analysis of what the funnels are like prior to digging in and getting started working? Because if you don’t, you can waste your time doing stupid things.

Here’s a thing which is stupid in Freckle’s instance but will work for a lot of B2B companies. I do it with almost every B2B SaaS company. There’s a point in the B2B SaaS where, after you’ve signed up for the free trial, you have to invite your team into using the product.

Typically B2B SaaS, there’s some sort of collaborative thing involved, and it gets more useful the more people you have using it. If you don’t invite your team into it, it’s highly likely that you’ll stop using it at the end of the month.

You have to be careful about the copywriting for sending out an invitation. If you have copywriting like, “You’re invited to Freckle,” that seems, from the perspective of an engineer working at the company, if they just get an invitation out of the blue saying “You’re invited to use Freckle,” they’re like, “Well, that doesn’t mean anything to me,” and just delete it.

But if you said, “Your boss, Bob, requests that you use Freckle for time tracking,” then they’re going to feel, “Oh, I sort of have a social obligation towards the guy who signs my paychecks to actually do what he tells me to on a fairly frequent basis. So I’m actually going to click the signup link and start using Freckle.”

That’s an easy, automatic win for almost every B2B SaaS company. I was about to say, “Amy and Thomas, you should get on implementing that right now.” Then I asked Thomas, “How many people who receive this email don’t actually act on it?”

That wasn’t a number we tracked anywhere, but we ran some arbitrary SQL queries, and it turns out the answer is 1.5 percent. 98.5 percent of the people who get this email actually sign into Freckle and use it so trying to optimize that number is a total waste of time. Versus we can look at other places where 30 percent of the people are going through the funnel and try to get that 30 up to 40.

Since things are multiplicatively effective, that’s like raising the revenue growth rate by 33 percent rather than trying to, “Oh, God, we’re going to work for weeks and craft the best invitation email ever and get 98.57 percent to survive through that step.” Don’t waste your time. Look at the numbers first.

Here’s the pre‑trial signup flow for Freckle. You go to the home page. It’s nice. It’s pretty. It sends you to the pricing page. You pick which plan you like. You put in your details. As soon as you hit “Go,” which is somewhere off the bottom off the screen here, you have a Freckle account.

Everybody probably has a very similar thing. This is quite standard in the SaaS industry. We’re going to dig into each of these steps and see what we can do better. When we look at the numbers, these numbers, by the way, are from KISSmetrics. I like KISSmetrics.

It’s a bit on the expensive side for bootstrappers who don’t have revenue yet. You can do it all with arbitrary SQL queries or MS Excel if you want to. But it produces nice, beautiful graphs that I can use in presentations, so I always suggest it.

Of people who visit the home page, only about 15 percent or so get to viewing the plans page. That’s a very low number relative to many other companies I’ve worked with. Improving that, as long as we get the same caliber of customer to get to the plans page, is pretty much an automatic win for Freckle.

Even if we double it, that doesn’t necessarily double sales. Just getting people to the plans page doesn’t move the needle at the business, but, in general, things that get people longer in funnel will tend to have some sort of increase later down the line, in general. There’s exceptions.

Just to give you a comparable for this, by the way, Appointment Reminder, I filed the serial numbers off, but 38 percent of the people who go to the home page actually get to the plans page. The main reason is different design things that we do. I’m going to go into what Freckle does design‑wise that I would do differently.

If they were to move their “View the plan page” conversion up to where mine is, it’s a 250 percent difference, my guesstimate from finger‑to‑the‑wind of having done this at a few companies, is that probably increases their sales growth rate by between 20 percent and 100 percent, which is, obviously, very worthwhile to do.

Amy Hoy: Understatement. You’re a master of understatement, but that’s the most understatementy understatement…

[laughter]

Patrick: I went into one company once and was reporting to their CEO. “I thought I was going to increase gross revenues by 100 percent. I’m sorry. I failed.” He was, “Define failure.” “I only increased gross revenue by 15 percent.” [laughs] He schooled me on the way business actually works, because that’s normally what they do in a year.

[laughter]

Patrick: Anyhow, we’re going to look at the front page and see what we can do about the front page such that we get more people onto the plans page. We’re going to pick high value targets.

What is a high value target? It’s something that a lot of people see and they interact with and it’s likely to influence their decision on whether to go to the next page or not.

For example, what is not a high value target? There’s some wonderful copy down here, but we know nobody reads on the Internet. That’s not actually true, but statistically speaking, only 20 percent of the audience or less is going to actually read everything on this page.

If they’re making the decision after five seconds to hit the back button and not go onto the plans page, it’s probably not because they didn’t love this line “Kiss configuration goodbye” that’s down here in normal font way down on the page.

They’re probably responding, overwhelmingly, to the headline, H1 here, to this image, and to the actual mechanism for getting to the plan age. We’re going to go through those, in turn and see what we can do. At this point some people might say, “OK, we can A/B test headers against each other,” and just start. “Give me two sentences. We’ll throw them out there and see which one wins.”

I don’t love doing that, because that’s a great way to chase down a rabbit hole. Before you start throwing things at the wall, you should try to get into the head, build a mental model of the mind of your prospective customer and figure out, “I’m trying to put myself in your shoes. Why aren’t you giving us the time of day to at least see how much it costs or see what the plans are like”?

Maybe my hypothesis is that you don’t understand what Freckle is. You don’t understand Freckle is time tracking. Why might you think that? Because “Goodbye Administrivia” doesn’t necessarily tell you in the first 10 seconds you’re looking at it that it’s time tracking.

If that was the problem, if Amy was hearing that sort of feedback from customers or she was shoulder surfing people and they clicked back and she said, “Pst, pst, why?” “I don’t really know if this is for me. I don’t know what it does,” then what would we do headline‑wise to address that?

Here’s some we could test. We’d probably test them against each other using A/B testing or something. “Online time tracking with Freckle.” It’s simple. It’s to the point. It’s very obvious what it does then.

You’ll find that “simple, to the point, and obvious” beats the heck out of more florid copy.

Goodbye administrivia sounds like something that a director of marketing might really love. The director of marketing gets ROFLstomped by 17 year olds with a decent senses of the English language a lot in my experience.

Also you note that one has pretty nice SEO benefits. If you have online time tracking in the H1, you’re much more likely to rank for online time tracking. That might or might not be effective for your business. It probably wouldn’t move the needle at Freckle, to be honest.

Their primary customer acquisition strategy is people who come into the Amy/Thomas ecosystem and then, at some point, they look for Freckle by name because they’ve heard such great things about it. Another thing you could offer, frictionless time tracking, which both says what it does, time tracking, and gives them something to catch their attention with.

If I say that it’s frictionless or any other very descriptive adjective that gets your mind thinking, you start to think of all the painful things that you have done in time tracking in the past, how it’s a waste of your time, boring drudge work.

You might be intrigued enough to think, “Frictionless, why is it frictionless,” and then actually read the rest of the page where they tell you. Here’s another thing, “Time tracking with 42 percent less suck.”

Apparently in all of the classical marketing texts that are taught at colleges, they tell you to beat the heck out of any sort of personality that you put in your advertising copy. Unfortunately, [laughs] that doesn’t work very well.

I ran a World of Warcraft guild for a couple of years. I’m a geek. I own it. I often talk like a semi‑immature geek when I write copy, because it generally tends to connect with my audience.

Find out what works for your audience, whether it’s informal diction or the more classical stylings of a Harvard‑educated professional or whatever works for you. Try to get that feeling for the company, the vibe, your voice, off early and often in the copy.

By the way, if I just told you this product is more effective than the time tracking you’re using right now, your perception of how credible that claim is is probably less than if I told you, “It’s 42 percent less suck,” because numbers, for some reason, are trusted more than claims that don’t have numbers about them.

If you think about this for five seconds you might think, “Wait, wait, there’s no objective measurement for how many units of suck a time tracking tool might have.”

[laughter]

Patrick: You can even play with that in your copy like asterisk, a “according to our Mom”, whatever. If you surveyed people with the before and after, their perceived trust would go up with the “suck” headline. That’s a thing you should always keep in mind about numbers.

Another thing about numbers, for some reason, numbers that are not round, not 10 percents or 5 percents or 25 percents, but like 43 percent are perceived as more credible than numbers that are rounded.

It’s like, “Oh, if you know how to understand a rounding function on your calculator, you must be an evil, educated scientist trying to trick me. But if you just pick a number out of thin air and end it with a seven, then clearly you’re on my side.” I don’t know why that works, but all the marketers will tell you that it works.

Don’t make up numbers out of thin air if they’re going to be consequential numbers, but if you do have a number that you can say, “People who use our tool spend 47 percent less man‑hours on this task,” don’t round that to 50. It’s against your interests, even though 50 percent sounds like more in isolation.

What else could be going wrong with the headline? Maybe the problem isn’t the customer doesn’t know what Freckle is. They just don’t understand what Freckle does for them. “Time tracking, I get it. I do time tracking. I don’t know if I spend the next week of my life learning how to use your tool, how doing time tracking with Freckle makes my business better than it is right now.”

If that’s our hypothesis, what do we tell the customer? Early, at the very tip of our relationship with them in the H1, that they should be giving Freckle the time of day. One option.

Bill more hours in less time. There are always two benefits that you can sell to any business you’re selling to, and, by the way, sell to businesses, not to, say, teachers because teachers have no money and have very unreasonable expectations. Businesses have lots of money and very reasonable expectations.

Businesses have one reasonable expectation in particular. It’s anything that increases their revenue or reduces their cost, they’re happy to pay money for. If you can credibly promise that you are going to increase their revenue or reduce their cost, the sale is almost already made.

If you are, say, a consultancy and you have to do time tracking because you bill your clients on an hourly basis, bill more hours with less time.

That’s a direct correlation to revenue for the consultancy. That’s a win for them. You have a direct correlation to revenue to reduced costs in your business. Put that front and center.

Earn more money freelancing with less pain. Again, we’re targeting the money thing. We’re getting people to select here. This, actually, is a selection that’s a bit against their interests because they’re trying to move from freelances to multi‑member firms who can afford to pay more, but just throwing this out there as an idea.

“You earn more money as a freelancer…” If you are a freelancer, this sort of phrasing lights up your snyapses with: “Oh, I’m a freelancer. The rest of this might be relevant to me. I’ll actually read the copy.”

“Less painful?” Honestly, that’s a little overused these days.

A lot of people say their software “It’s less painful and easy to use.” It’s been overused to the point of death now that we’re no longer all using MS Office and every SaaS company says, “We are easier to use than MS Excel.”

The smallest little clap, guys.

It’s a benefit that you could potentially offer to them.

Here’s something. One of the things I love about SaaS businesses is after you’ve run it for a little while you have more data on your users than the Orwellian Minitrue. You can use that data to help out your own businesses. For example, in my business I had to increase people’s no‑show rate. I have a very good idea of how much I need to increase their no‑show rate by.

Without telling any sort of lie whatsoever, you can credibly claim something in your H1 saying, “Bill 15 more hours next month.” Again, it’s a number, it sounds like a credible claim to the reader. If it sounds like an incredible claim, you can justify it in the first paragraph.

“Our customers tell us they bill 15 more hours the month after they start using Freckle, because they rescue time.” How do they rescue time, because right now you’re not charging all of the time you actually work and move into your sales copy. We’ll go into more thoughts along that line later.

“I understand what Freckle is. I understand why someone might want to use Freckle, but I don’t know why I, in particular, would want to use Freckle. How does this connect to me?” Ramit Sethi has an awesome quote. He says, “We’re living in a world of infinite choices right now.” In a world of infinite choices, if something isn’t made exactly for me, then I’m gone.

In a world of infinite choices with 42 different time‑tracking tools you could try, why would Freckle be the best time‑tracking tool for me specifically. How do you connect to them on a very visceral, emotional level early?

Headline like “Too much free in your freelancing,” Then you can use a subhead like, “Freckle helps you actually bill every hour you actually work.”

You know there are freelancers in the audience who think, “Oh man, there was that 42 minute conversation that I had with Dave last week, but it never made it onto the sheet. If it never makes it onto the sheet, it never makes it onto the invoice, and if it never makes it onto the invoice, I don’t get paid.”

That sort of time recap happens all the time in my business. That’s noxious, and I’m losing money because of it. So we connect to them on that emotional level about this thing they’re missing.

Another option. “Freelancers and firms find Freckle fabulous.” I know alliteration is discouraged after about sixth grade or so, because everyone is, “Oh, sixth graders use that technique.”

But if you look at the data, people use this technique because it tends to draw attention really well. If you want, you can put a lampshade on it. For example, as a subhead: “Time tracking doesn’t start with an F? Dang, we had something good going there.”

Carry on with the jokey, kind of semi‑informal copy with the rest of your marketing materials or sales copy. We’re not exactly proposing marriage with the headline. We’re just trying to get them to not click the back button.

I think Paul Graham said that “The biggest enemy is never another startup.” It’s very rarely another company. Generally the biggest enemy of every company is the back button. Again, in a world of infinite choices, I need to make early and often the case for paying more attention to you.

Another way to get people to qualify it for themselves, “Do you bill at least $25 an hour?” Put any number you want in there. The people who do will be like, “Oh, yeah, that’s exactly for me.” The people who don’t might be a little defensive about that. “What, I’m not good enough for your thing just because my billed rate is $24 an hour?”

It will get them reading, and then you can make a ROI focused calculation on why they should start using your thing, which they actually do on the pricing page, which I think is a very good tactic.

That’s all we’re going to talk about with the H1 here, but I hope you’ve gotten some ideas that you can apply to your own businesses.

Amy and Thomas do many things very right in Freckle. The design of the front page, not one of them. Fair?

Amy Hoy: Fair.

Patrick: If you remember back…looking at the design of the front page here…If you click this, all of the color that is not pink, you get taken to a product tour.

The product tour is actually a video. There’s some very catchy music. I encourage you to all watch the video. The catchy music is catchy, and it shows off the various features of Freckle. But it doesn’t really make a case for buying Freckle. The video is like, [sings] “Da, da, catchy music stops,” and this is the screen it stops on.

We’re smiling at Amy’s wonderful mug, and we don’t know how to go forward in our relationship with Freckle at all.

I went to Thomas and I’m like, “Was there an encoding problem? Where’s the rest of the video?” My expectation is that videos stop with a call to action or they stop with some notion of what I should do next, and it just didn’t.

My guess is that a lot of people are clicking on that very visually engaging element on the front. They go to the tour. They play the video or they don’t play the video because they can’t play the video at work or whatever, and then, boom, that’s the end of the relationship. They hit the back button, and they’re gone.

We wouldn’t do it that way. You should generally avoid poking holes in the funnel. Give people…Always give them a clear next step that you want them to take in the relationship. On the front page, the clear next step is ideally you would send them directly to a plans page, but if you want to send them to the tour, make sure the tour transitions directly into a signup afterwards.

If they’re not ready for the signup, transition them to an email newsletter. Get them within your ecosystem such that you can get in touch with them rather than losing them to the demon back button. The convergent element on the front page is this big pink arrow.

The first three times I looked at this page I thought there was actually no button to go to plans and pricing, because the arrow looked like a visual kind of filigree rather than anything I could actually click on. Many things about this arrow are wrong, the placement of it, the color of it, the shape of it, and probably the call to action, “See plans and pricing.”

Nobody woke up this morning and was, “Do you know what I want to do today? I’m going to work, and I’m going to see plans and pricing.”

[laughter]

Patrick: Let’s talk about how we can make that button a little better. First, buttons should look like buttons. When I was doing this slide, I looked at my buttons and was like, “Oh, my buttons are terrible, but at least they look like buttons.”

This is a test you can do with any website you ever make. Put on a blur filter in Photoshop or whatever you use. I use Paint.net. See if you can still find the buttons on it, what’s clickable. You can find them here. It must be these rectangular looking things.

We’re socialized to think that rectangular things that have high‑color contrast with surrounding regions must be buttons and must be clickable.

Be nice to your users, too. Some users who might not be quite so familiar with the Internet might not know that that is a thing yet. They might click on things like, “Oh, pretty lady. Click on pretty lady.”

[laughter]

Patrick: We can infer something about their state of mind from, “Click on pretty lady.” They didn’t click on pretty lady because they love hearing the mouse‑click sound. They wanted more information about how they can be like the pretty lady who is succeeding with Appointment Reminder. I just dropped them to the plans page anyhow.

[laughter]

Patrick: No lie, that actually works. [laughs] If you put on the motion‑blur test, can you find the button on this page? My first thought for the button would be this big blue thing. You might click on the big blue thing and then get taken into the tour which does not advance your relationship with Freckle, the product. You totally missed the pink bar.

Make your buttons big and easy to click.

[laughter]

Patrick: Somebody with a limited familiarity with the English language told me in 2007 “Patrick always goes for the big orange pancake buttons.” I love that, because I always do go for the big orange pancake buttons, because they work so well.

[Patrick notes: Example of Big Orange Pancake Buttons:

]

Generally a big button looks like a button, nice and easy to click, and good on the copywriting. Let’s talk about button copywriting.

There’s a formula for buttons. It works for almost everybody. I encourage you to use it any time you’ve got an action. Ready? It is verb plus benefit plus, if you’ve got the space for it, some mention of immediacy.

I’ll show you examples of that. “Get started now.” Classics are classics for a reason. A lot of people use things like, “Create account” or “Sign up now” or whatnot for the button. “Get started now” promises value rather than pain. They’re going to get started on whatever they’ve learned from the rest of your website is presumably a valuable activity for them.

If you focus on the account or the signup, you’re focusing on the fact that, “Yeah, charge your money now. Give us money now or get into this bureaucratic relationship that you don’t perceive as value‑added yet.” Ignore that part of the offering and focus on what they’re getting out of it rather than what you’re getting out of it.

“Start tracking your time now.” That’s very benefits focused.

“If you’re not tracking your time, start.” This only really works if they know they have a problem with it. Do what’s appropriate for your audience and, again, test the heck out of this.

“Try Freckle for free.” Free is kind of a magic word in marketing. It works very well on button copy. If you have a free trial, don’t hide the fact that you have a free trial. That sounds obvious, but a lot of people do it. I occasionally got emails for years saying, “Hey, can I try that for free”? That’s what the big “Try now” button is on the home page. “It didn’t say ‘free.'” I’m like, “It’s been free for the…”

You aren’t telepathic. That is not how things work. Make it very clear to your customers when you have a free trial or something, that is indeed the offer. Start tracking your time. There’s no reason that, just because you have to have a nice snappy copy for the button, that you can’t have some sort of elaboration nearby it.

That sort of elaboration is called microcopy. 37Signals often doesn’t mean a hand drawn front where they put the little arrow and say, “It takes only 60 seconds” or something. You can do it however you like. Since I have no graphical skills and my handwriting looks like chicken‑scratch, I usually just put it directly under the button in a small restrained font.

The microcopy for this button might be, “No, really, if you use Freckle you will actually track your time. 45 percent of our customers tell us that Freckle was the first thing that actually got them to start using it.” Maybe give them a little bit of elaboration if they want to do it. People will say, “Oh, credible claim. I will click this button to see the next page.”

Let’s talk about the plans and pricing page. I know we all have one of these. I would encourage you, when you’re talking about it to customers, not to call it “The Plans and Pricing Page.” Plans and pricing does not make sales.

If this page was an employee of the company, he’d be one of your most important employees. He’s the sales manager that is bringing, if you are doing a pure SMB business, 100 percent of the sales. This guy would be getting a massive commission.

Make sure when you’re designing this page you treat it like the important business‑lifting page that it is, which means important in terms of what you refer to it elsewhere on the sight, important in terms of how much time you spend optimizing it, important in terms of how much time you spend testing it.

“Try Freckle for free,” totally good in terms of an H1 for it. Although, if you didn’t remember from the front page that Freckle did time tracking, you would find that information nowhere here. If you didn’t’ remember any of the sales points for Freckle from the front page, you would find none of them here. It’s totally feature‑focused. Features don’t sell software. Benefits sell software so put the benefits on this page as well.

See these little buttons? These are obviously the buttons we want people to be clicking on to sign up. Again, you don’t want to use the word “sign up,” because signup is, “Oh, bureaucratic stuff. Am I going to get charged for this right away?”

Many customers have a very interesting understanding of how the world works. All of us who have used SaaS before understand that we’re going to click the signup button and there’s going to be a page where you get a little time to think about it, type in our credit card number, and then hit “go.” As long as we don’t hit go, nothing happens.

Many of your customers don’t have that background knowledge. They think as soon as they click “Sign up,” a lawyer is going to show up at their door with an invoice that they have to pay. Ease them into that transition if they need to be eased into it by telling them, “Yes, there is value behind this button, not immediate pain with a lawyer hounding you down for collection calls.”

Here’s a good all‑purpose button to use. “Start with this plan.” Starting is something they want to do right now. Also, remember the “Kill Objections” talk from earlier? I like that. Here’s one objection somebody could have. “I don’t know what plan to pick.”

Make that either. Totally remove the choice. One thing Wildbit did recently was had one plan that you start with and they’ll pick one for you later. Or, “Start with this plan.” You can get started with any of the plans, and it’s a reversible choice that has no consequences. If you decide you want a different one three days later, great, wonderful. You can explain that with copy and very, very succinctly.

Another problem with this page, analysis paralysis. There are five different signup buttons I’ve got here. As the, perhaps, user who is not as acquainted with this product as Amy, I don’t understand which one is the best choice for me. Because I do not have that SaaS background, I might think this is a consequential choice that I have to get right or my relationship with Freckle is ruined.

In lieu of picking a choice that might be wrong, I might decide to choose nothing and just go to the back button. To get somebody over that hump, what do we do? One thing we could do is present less choices. You can have all the choices available. Just show a few of them.

What I did here…This is a pre‑existing page, I just did a little bit of tweaking to it. I just show their most expensive plan, their most popular plan, which is the freelancer one that’s low and then a medium plan that covers most of their clients. If you wanted, you could put a little text thing in here. “Were those plans not right for you? We have other ones. Click here.”

The overwhelming majority of people will not actually click that, but it will give you an option. Another thing you can do is if people get in touch with you via email, “Yeah, I didn’t see one that worked for us,” just give them a link straight to the right sign‑in page. Say, “Sorry, we’re testing stuff. We’re a small company.” Nobody ever gets mad at that.

I’m leaning on this too much.

Another thing this pricing page does not so wonderfully is the right‑hand bar. Take a look at the right‑hand bar. You’re going to get five seconds. One, two, three, four, five. Can anyone tell me anything that was on the right‑hand bar?

Male Audience Member 1: “Don’t forget every plan.”

Patrick: Was that on the right‑hand bar?

Man 1: Yeah.

[crosstalk]

Patrick: OK, “Don’t forget every plan.” There was a big list of features, and none of them mattered to anybody here. You don’t recall any of them. They don’t help drive that decision, “Do I proceed to the account screen button or not?”

In general, less is more. Rather than a feature list, stomp the heck out of your most common objections.

Objection, “What if I don’t like it?” Answer, “We have a money‑back guarantee. We don’t want your money if you’re not totally thrilled with this product. We’ve never accepted a penny from someone who wasn’t satisfied.”

Objection, “Can I trust you? I’m going to be putting my data in this. It’s data that my company relies on. What happens if you are a fly‑by‑night Internet thing”? “We’re not a fly‑by‑night Internet thing. We’ve been doing this for years. We have 6,000 happy customers including the likes of ‘logo, logo, logo.'”

Objection, “Is it worth the cost?” “Yes, you’ll receive easy, obvious ROI, and if you don’t, we’ll give you your money back.” You can link in an ROI calculation which they have elsewhere on the page. Say something from your user’s experience, like “Most of our users on the medium plan charge more than 300 times what the medium plan costs,” which is probably accurate.

Objection, “Will my team use it?” No. If I’m somebody in a business and I need to bring my team onto something, it is not just a software problem you’re solving for me. There’s also a social problem of onboarding my team and getting them to change the way they currently do things and adopt this thing and if they don’t, I can’t use it.

You should say something like, “Your team will love this.” You can even pull out stats that you have from the product like, “98.5 percent of team members who start using Freckle actually start using it. Why? Because the experience is awesome. Let us tell you more.” Give them a link that most people won’t click.

The next and last page in the pre‑signup funnel is the signup screen itself. How many people have mocked this up once in Ruby on Rails or whatever their thing of choice is, and as soon as you tested the stripe integration you can actually charge the credit card? That is the last thing that you have ever done with this page.

I see hands going up timidly. You are not alone. [laughs] I was looking at this like, “I’m going to compare and contrast my page with Amy’s and show what I’m doing better.” I’m making the same bloody mistakes!

[laughter]

Female Audience Member 2: Yay!

[laughter]

Patrick: Again, we’ve got whiteness over here. We’re not making any sale for Freckle on this page. Continue telling them, “Here are your objections. I’m stomping all over your objections.” Anything that is on the page that does not stomp on an objection does not need to be on this page.

For example, “You will receive an email receipt each time your credit card is charged. We do not accept other forms of payment like PayPal, IPOs, or check…POs or checks.” They probably don’t accept IPOs either.

[laughter]

Patrick: Does that need to be on this page? Is it going to make a sale for this? No. It might prevent an email once in a blue moon to the customer support team, but answering emails is cheap, so get rid of that.

“Enter password again.” Is somebody’s objection to adopting Freckle, “I think I might type in my password wrong. I’m kind of scared about that.”

No customer in the entire world thinks that, so never ask for a password confirmation. If they get it wrong, they can click the easy “Resend password” feature that you’ve all implemented.

Other than that, much of it is pretty good. That’s just the first free sign‑up funnel. We could talk in a lot of detail about other funnels, but unfortunately I can’t be here for the entire day. I would encourage you to look at one thing that Freckle does really well. It’s their first run experience, also called the onboarding process, where they’re taking a user, they’ve just signed up for the free trial.

It’s like, “OK, here’s what we do, and here’s why it matters.” Freckle does a really good job at explaining “Here’s what we do.” They walk you through, “Here’s how you can track time in it. It’s very easy. The UI is wonderful. You’ll love it. It’s very quick to use.”

They actually have you push buttons and see the results in the UI. That’s called an in‑application tour. I really recommend them, they work very well for me and my customers. Unfortunately, Freckle doesn’t tie that to the next step, which is after showing what you do, tell them explicitly in the tour while you’re guiding them why it matters to them.

This is something that, if you’ve ever taught before, you’ll realize this. When you’re in teacher‑student mode with someone, and you’re guiding them, maybe hunched over the laptop, or whatever it is, they tend to trust anything you tell them in teacher‑student mode, because that is our default method of interaction with teachers.

After you’re teaching them about the things that you certainly know, like what buttons to push on your interface, you should tell them what changes it’s going to make in their business as a result of that.

When they’re in that teacher‑student interaction with you, they are more likely to trust that representation than the exact same representation made by the exact same people, but on the marketing site. One of my consulting clients phrased it as, “People always trust engineers more than marketers and salesmen.” Who knew?

So that’s that. Take a run through that if you want to see how it works.

Many of the better‑put‑together SaaS companies…I have one these days, Fog Creek has one these days that I wrote. I think 37Signals probably has one. Take a look at it. For those of you who are doing B2B SaaS, one little micro‑tip for tours.

At the end of a tour, always ask people explicitly, we’re always giving them the next step of their relationship to us, and to B2B SaaS, the next step of your relationship, after you’ve figured out how to use the product, is almost always onboarding your team.

Explicitly ask to get their team members on there. Why? They’ll typically churn if they don’t have their data into the system, and making actual changes to the business within the first month, in many cases testing your business, because this isn’t the law of nature.

In many cases, the best way to get their data in the system is to get their other team members into the system, because often SaaS is bought by somebody in the organization, but used by other people.

Get the people who matter to the use of it into the system. Makes it much more likely that the data will come in, and then you’ll actually get that sale. If it’s just the team leader, who doesn’t actually do time tracking, sets up a Freckle account, and then he forgets to tell his team, or he doesn’t know how to tell them how to log into Freckle, because he might not be a very technical person to begin with, then they probably don’t get that sale at the end of month.

If on the other hand they’re, “Great, you got their account, copy/paste in a list of all of the email addresses of your team members, and we’ll send them invite codes right now,” then that is much more likely to get done.

We could talk about consulting clients here, they might not appreciate that. I’ll say this, a consulting client, you’ve all heard of them, implemented the copy/paste in email thing, and tied up to the end of their tour, and the change to the business from that one afternoon of coding exceeded the change to the business of entire years of their entire team working on the product.

It’s not an obvious change, but it’s an easy change for you to make. You should probably make it if you run a SaaS business. Explicitly ask to onboard the team.

Here’s my contact information. Again, I owe a deep debt of gratitude to other people who have helped me get my business to where it is.

I love talking to people. If you ever have a question about anything, and want to run the idea past me, please drop me an email. [Patrick notes: Seriously. My main email address is patrick at the domain you’re reading.] I can’t promise a response back to all of them, but you’ll never offend me or anything. Thanks very much.

Postscript

If the above was interesting to you, you can get a one-month free mini-course from me on conversion optimization or get my thoughts on making and selling software in your inbox approximately once every week or two. (And yeah, I know, I know, I haven’t written anything to you guys in a month or three. Working on it!)

What Heartbleed Can Teach The OSS Community About Marketing

Posted on April 9, 2014 by Patrick in marketing

If you’re a technologist and you’re not living under a rock, you’ve heard about Heartbleed, which is a Severity: Apocalyptic bug in the extraordinarily widely deployed OpenSSL software. Heartbleed lets anyone capable of finding a command line read encryption keys, passwords, and other private data out of affected systems. If you don’t remember addressing this in the last 48 hours close this window immediately and get to work.

Now that we’re past the immediate panic phase, though, I want to share some lessons learned. Security experts can tell you more than I can about what it means for good C coding practices in high-criticality security libraries. I want to take a moment to point at the marketing aspects of it: how the knowledge about Heartbleed managed to spread within a day and move, literally, hundreds of thousands of people to remediate the problem.

Heartbleed is much better marketed than typical for the OSS community, principally because it has a name, a logo, and a dedicated web presence.

What’s In A Name

Remember CVE-2013-0156? Man, those were dark days, right?

Of course you don’t remember CVE-2013-0156.

The security community refers to vulnerabilities by numbers, not names. This does have some advantages, like precision and the ability to Google them and get meaningful results all of the time, but it makes it very difficult for actual humans to communicate about the issues.

CVE-2013-0156 was the Rails YAML deserialization vulnerability. “Oh! I remember that one!”, said the technologists in the room. Your bosses don’t. Your bosses / stakeholders / customers / family / etc also cannot immediately understand, on hearing the words “Rails YAML deserialization vulnerability”, that large portions of the Internet nearly died in fire. After I wrote a post about that vulnerability I was told for weeks by frustrated technologists about e.g. VPs nixing remediation efforts due to not understanding how critical it was. That’s a failure of marketing.

Compare “Heartbleed” to CVE-2014-0160, which is apparently the official classification for the bug. (I say “apparently” because I cannot bring myself to care enough to spend a minute verifying that.) Crikey, what a great name that is.

It references the factual underlying technical reality of the vulnerability, which is data leakage during a heartbeat protocol.
It is very emotionally evocative. Think of your associations — “my heart bleeds for you”, the Sacred Heart and associated iconography, etc.
It sounds serious and/or fatal.

Geeks sometimes do not like when technical facts are described in emotionally evocative fashion. I would agree if it were for the purpose of distortion, but “If you use OpenSSL 1.0.1a-f you could be leaking server memory” actually is serious and/or fatal, so describing it as such has the benefit of making people seek immediate resolution, which should be our goal as technologists.

Unique names (and “Heartbleed” is unique, given that you’d be hard pressed to find any mention of it which predates the vulnerability) are useful for communicating shared concepts between people. My Twitter stream for the last few days is people sensibly discussing e.g. “Don’t forget, you can be heartbled in a client context”, “How do you fix Heartbleed on Ubuntu?” “Depends — older versions aren’t vulnerable, newer versions can just apt-get update & upgrade” “Thanks!”

This is a substantial improvement on conversations I’ve had about previous vulnerabilities, where you often end up discussing, e.g., “the Rails bug.” Which one? You know, THE bug. Wait THE bug or the other bug? The YAML bug. Wait wait the YAML bug in the XML handling or the class of bugs caused by YAML deserialization? Man, would that have been an easier month if we had all been talking about DeserialKiller.

Names which don’t involve arcane trivia like “OpenSSL 1.0.1g” are also easy to communicate with non-technical stakeholders. If you had a launch yesterday, and you were forced to choose between making the launch date and fixing Heartbleed, you absolutely should have scrubbed the launch. We were all racing against for loops and the prize for 2nd place was “Our customers’ security gets horribly abused.” To actually scrub the launch, you might need to convince e.g. a manager that despite the company having dropped $100k on a splashy ad campaign, Heartbleed was priority #1. The image of your lifeblood dripping out was more likely to successfully accomplish that than a CVE number.

Clear Communication

The Heartbleed announcement should be taught in Technical Writing courses. It is masterful communication. Let me quickly excerpt the first three paragraphs:

The Heartbleed Bug is a serious vulnerability in the popular OpenSSL cryptographic software library. This weakness allows stealing the information protected, under normal conditions, by the SSL/TLS encryption used to secure the Internet. SSL/TLS provides communication security and privacy over the Internet for applications such as web, email, instant messaging (IM) and some virtual private networks (VPNs).

The Heartbleed bug allows anyone on the Internet to read the memory of the systems protected by the vulnerable versions of the OpenSSL software. This compromises the secret keys used to identify the service providers and to encrypt the traffic, the names and passwords of the users and the actual content. This allows attackers to eavesdrop on communications, steal data directly from the services and users and to impersonate services and users.

What leaks in practice?

We have tested some of our own services from attacker’s perspective. We attacked ourselves from outside, without leaving a trace. Without using any privileged information or credentials we were able steal from ourselves the secret keys used for our X.509 certificates, user names and passwords, instant messages, emails and business critical documents and communication.

That is tight, precise, hard-hitting writing, of the sort which we normally associate with journalists rather than cryptographers or software engineers. It is both technically accurate and yet comprehensible if you are not a technologist. It doesn’t bury the lede about severity: “popular $MUMBOJUMBO software library” “allows stealing the information protected” on your “web, email, IM, and virtual private networks” “without leaving a trace” including “user names and passwords, instant messages, emails, and business critical documents and communication.”

The website goes on to provide technical details and remediation advice, but you can already tell your boss “I can’t do that today, boss. We have to respond to heartbleed.com.” If he spends even 30 seconds glancing at that executive summary he’ll say “Crikey. Yep, you do.” I particularly liked the recognition that most remediation of Heartbleed would be done by businesses, which is probably why the writer focused on “business critical documents” rather than the more anodyne “data.” Data gets weighed by the gigabyte but business critical documents spur immediate action when threatened.

The Benefits Of A Dedicated Web Presence

I often tell OSS practitioners to use dedicated web presences for projects they consider important, as opposed to dangling them off of (without loss of generality) Github. Why?

People will generally try to link to something to describe a project / vulnerability / etc, and having an easy and obviously linkable canonical description is both best for clarity and best for your own personal interests as the project/etc creator. Heartbleed.com is the canonical explanation of Heartbleed, both because people trust $8.95 domain names and because it was first published, came with a design/logo and comprehensive information, and is suitably authoritative in character.

Compare it to the best canonical reference you can find about CVE-2013-0156. That would be an archived copy of a plain-text email, hosted on Google Groups. It isn’t particularly attention grabbing, doesn’t really scream “citable” to either a technical or non-technical audience, and is optimized for a fairly narrow strand of practitioners rather than the much larger audience of people who should have cared about CVE-2013-0156.

Visual Identity Is Important

The Heartbleed logo is probably one of the highest ROI uses of ~$200 in the history of software security. (I don’t actually know whether they got it done for $200, but that is about what I paid the last time I had a logo done for an OSS project.)

Heartbleed Logo

I saw some kvetching on Twitter to the effect that the logo designer heard about Heartbleed before the distribution maintainers at e.g. Ubuntu and RedHat did. This kvetching is wrongheaded, because the logo designer only needed the instruction “We have a project named Heartbleed. Come up with a logo which says serious danger.” rather than “Apropos of nothing, mostly non-technical logo designer, the heartbeat protocol in OpenSSL 1.0.1a through 1.0.1f has been fubared for 2 years now. Don’t tell the Ubuntu guys though, we’re trying to keep it a secret!”

(I am, for what it is worth, absolutely agnostic on who should have preferential access to information of upcoming vulnerabilities with regards to a particular project. This strikes me as something which should be bought from maintainers/security researchers if you care about it, but I’m only weakly committed to that.)

Why spend the extra money for a logo? Because it suggests professionalism and dedicated effort, because it will be used exhaustively in media coverage of the vulnerability, because it further deepens the branding association of the vulnerability, the name, the logo, and the canonical web presence, and because it also suggests danger. Is it the best logo in the history? No. This one won’t win design awards. But it certainly does the job with aplomb.

OSS projects often don’t have logos or, ahem, do not devote to them the level of technical excellence that they devote to their products. I will refrain from pulling in examples here to make my point.

Marketing Helps Accomplish Legitimate Goals

There exists a huge cultural undercurrent in the OSS community which suggests that marketing is something that vaguely disreputable Other People do which is opposed to all that is Good And Right With The World, like say open source software. Marketing is just a tool, and it can be used in the cause of truth and justice, too.

As technologists, the Heartbleed vulnerability posed an instant coordination problem. We literally had to convince hundreds of thousands of people to take action immediately. The consequences for not taking action immediately were going to be disastrous. They were not limited to “mere” violations of computer security, but would have had dire economic and social consequences in the real world. Livelihoods (and, likely, lives) were at stake.

Given the importance of this, we owe the world as responsible professionals to not just produce the engineering artifacts which will correct the problem, but to advocate for their immediate adoption successfully. If we get an A for Good Effort but do not actually achieve adoption because we stick to our usual “Put up an obtuse notice on a server in the middle of nowhere” game plan, the adversaries win. The engineering reality of their compromises cannot be thwarted by effort or the feeling of self-righteousness we get by not getting our hands dirty with marketing, it can only be thwarted by successfully patched systems.

This makes marketing an engineering discipline. We have to get good at it, or we will fail ourselves, our stakeholders, our community, and the wider world.

More OSS marketing like Heartbleed, please.

What I Would Do If I Ran Tarsnap

Posted on April 3, 2014 by Patrick in marketing, microISV

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

Posted on January 6, 2014 by Patrick in microISV, stats

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:

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.)
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.
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.
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:

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.
The enterprise pipeline looks better than I could reasonably expect it to be, given my slackadasical efforts with sales in the last 6 months.
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.”

Call up my top five clients.
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.
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:

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
Above the dreaded penny gap, I have a book which I wrote on software conversion optimization.
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.
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!)
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.)

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