Transitioning from Maker to Manager

Ira Glass, the creator of the radio program This American Life, has this famous quote that’s worth reading in its entirety:

“Nobody tells this to people who are beginners, I wish someone told me. All of us who do creative work, we get into it because we have good taste. But there is this gap. For the first couple years you make stuff, it’s just not that good. It’s trying to be good, it has potential, but it’s not. But your taste, the thing that got you into the game, is still killer. And your taste is why your work disappoints you. A lot of people never get past this phase, they quit. Most people I know who do interesting, creative work went through years of this. We know our work doesn’t have this special thing that we want it to have. We all go through this. And if you are just starting out or you are still in this phase, you gotta know its normal and the most important thing you can do is do a lot of work. Put yourself on a deadline so that every week you will finish one story. It is only by going through a volume of work that you will close that gap, and your work will be as good as your ambitions. And I took longer to figure out how to do this than anyone I’ve ever met. It’s gonna take awhile. It’s normal to take awhile. You’ve just gotta fight your way through.”

It’s such a useful insight for creative work. It’s also a broader lesson that the thing that will be your ultimate strength can be, during a transition phase, a weakness that you have to overcome. Having great taste is ultimately something that will make your work great, but in the short-term, when you are beginning to learn a craft, that same taste tells you that your work is worthless. Your taste makes it hard to persevere through the practice and master the craft to a level a worthy of your own taste. To make it through that phase, you have to let some bad work happen—your own—and have faith that the process will improve it over time.

Something similar happens often when making the transition from a maker to a manager. Credit to Paul Graham for pointing out some important differences between makers and managers in the modern workplace. Although in this instance I’m not talking about scheduling, but taste or something like it.

Most of the people I know who are now managers, didn’t go to business school and train to be a manager, they started as makers. They started as founders, doing all the making at a company they created from nothing, or they started as key individual contributors, the first marketer/designer/developer at a small organization. Over time the organization grows, to hit its goals it needs a design team and an engineering team, and so talented individual contributors start hiring, resourcing, planning and managing.

And here is the most important skill I know for making this transition smoothly and effectively:

Let bad work happen.

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Selling My Bootstrapped SaaS Business

Five years ago I built and launched the first version of a SaaS app on a single flight from San Francisco to Buenos Aires. Slowly and steadily, Storemapper grew into a healthy location-independent business for one person and then later a small dedicated remote team. At parties, I would describe it as, “not a startup; a healthy growing internet small business.” This year, almost exactly five years after launching, I sold the business for what, to someone growing up middle class in Florida, is a life-changing amount of money that will enable all kinds of exciting new projects and adventures. From start to finish, it has been an exciting ride, much of which I have documented here on the blog. With the sale concluded, I wanted to share as much as I could about the process of building a business that can be sold and how I sold it.

There’s always a risk that these posts turn into a 5,000-word humblebrag. But I really do think it’s worth a read because, unlike most business acquisition stories, which often feel like an out of the blue stroke of good luck, the way that I sold Storemapper feels very replicable for other entrepreneurs. When I spoke to someone two years ago about what it would look like if I ever sold the business I would say, “I’m not trying to sell it now, but if I ever did it would probably look this…” And six months ago I would tell a few folks privately, “I think that one of the people I met recently might be the one to buy Storemapper and if they do it will probably go like this…” And, then basically when it all went down it looked more or less like… that. There wasn’t some single huge stroke of good luck, though of course, I got lucky in the little ways that every successful business has to. An excellent outcome, but also a perfectly reasonable and achievable one that I think can serve as something of a template for other bootstrapped entrepreneurs.

This is a long and detailed post. I had so many questions going into this process and I didn’t find a ton of good posts from the founders perspective on selling bootstrapped businesses. So I thought I would just throw everything I could think of into a post and let you skip around or save it for reference when you’re considering selling your own business. Grab a pot of coffee and let’s get started.

First the obvious: why sell your software business?

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Chapter 7: Retention & Customer Support as a Solo Founder

<< Chapter 6: Thriving in the Long, Slow, SaaS Grind

Churn is the biggest threat to a new Micro-SaaS business. Perhaps the toughest challenge of running a SaaS business by yourself is consistently retaining customers. However, keeping happy customers with a high retention rate makes every other part of running a Micro-SaaS progressively easier so it is critical to get your support and retention strategy dialed in early on.

If I had to point to a single thing that has so far made Storemapper a success it would be its incredibly low churn rate. Successful SaaS businesses of all types – bootstrapped or funded, large or small – will typically see monthly churn of 5% – 8%. Churn much higher than that will usually kill a SaaS business. Storemapper’s churn rate through five years of growth has consistently stayed around 1-2% per month with a substantial number of months showing negative net churn, where additional revenue from existing customers (upgrades) bring in more money than the loss from churn.

In this chapter, we’ll take a look at all the ways high retention and low churn makes every other challenge of Micro-SaaS easier. Hopefully, I’ll convince you of its importance. We’ll look at the attitudes and opportunities when handling support as a single founder and how to balance support with your other priorities. I’ll dive into my favorite tools and introduce the idea of automating empathy: a series of tactics I use for effective, automated, proactive support.

Lastly, we’ll look at a few tips for staying sane through what can be one of the most stressful parts of building a Micro-SaaS business. So let’s get started with perhaps the most important chapter in the book.

Why retention is so important

A larger organization might break down certain aspects of support into separate responsibilities like pre-sales, onboarding, inbound support requests, and tracking bugs. In a Micro-SaaS, with just one person or a small team, all these aspects are grouped under the broader topic of support. Improvements in one area will cause associated improvements in other areas. Great support (using my broad definition) has a direct effect on a number of key business metrics.

Conversion from free trial to paid users: An intuitive onboarding process and fast, useful answers to common questions will maximize the percentage of your free trials that decide to become paying customers. This is particularly important if you have competitors that they might be evaluating concurrently. A single unsolved support ticket during the free trial can be enough to tip a potential customer toward a competing app, even if it would be a worse option for them in the long run.

Churn: Repeatedly frustrating customer support interactions are a great way to increase the number of customers canceling each month. At Storemapper the primary reason customers would cancel their subscription is that they themselves were closing their business.

Expansion Revenue: Great support includes surfacing various features of your app at the right moment of need. Getting this process dialed can also be a great way to upsell existing customers to premium plans and increase the revenue from existing customers (called Expansion MRR). As an example, we do our best at Storemapper to make the process of uploading a CSV file as easy as possible; but it’s a notoriously difficult UI across all SaaS apps. Right there on the page is a small but convenient pitch for our “sync from Google Drive” premium feature for any customers who find the process too frustrating. This has the double effect of providing a solution at a common point of friction and increasing our Expansion Revenue for the customers who decide to upgrade at that point.

High retention rate and great support also have indirect effects on almost every other key metric for your business. Happy customers stay customers for longer, increasing your lifetime value (LTV). Keeping more of your free trial customers for longer reduced your customer acquisition cost (CAC) allowing you to confidently invest more time or money on each new free trial customer. Customers who have just had a spectacular support interaction with you are substantially more likely to provide referrals to other customers.

High retention means you can justify growing more slowly because you’re not putting new customers into a leaky bucket. There’s less pressure to constantly add customers. You can justify high touch “concierge” onboarding for new customers because you know it’s unlikely that effort will be wasted. Strong retention means that once your business matures, your revenue becomes more predictable month to month and you can rely more on that revenue to pay your own bills or employee salaries.

Have I gotten your attention yet? Support is important.

Customer Support as a Solo Founder is hard

Support is a difficult but important gig. There is a reason startups have begun upgrading the title (customer success, customer happiness guru) and trying to attract higher quality talent to these positions. Good support is critical to onboarding and retaining paying customers.

It can be challenging to balance providing great support to existing customers with further developing the product to attract new customers. If you did a minimum viable product (MVP) launch correctly, your product currently lacks a ton of features and has more than a few bugs. You will be getting a lot of bug reports and feature requests (and occaissional feature demands) from customers who are at times frustrated and confused. If you launched really well, the backlog will be much more than you can reasonably handle.

Navigating support as a solo founder can be a minefield and it’s important to have a strategy before frantically wading into the queue of emails and tickets.

The Guiding Principle: Every support ticket is an opportunity

But there’s hope. It’s too easy to view support tickets in a negative light. It’s a long task list that you need to check off before getting back to work on product. It’s a stream of grumpy users who can’t even read the dang instructions you so clearly wrote out inside the app.

But this is completely the wrong mentality because the reality is that every support ticket is a massive opportunity. Your worst customer is not the one sending you a support email every day for two weeks, your worst customer is the one who signs up for your app, then cancels without ever giving you a word of feedback. Customers who take the time and energy to write you a support email have now taken a vested interest in getting your app to work for them. It’s important to listen to them, ask follow-up questions and not just view the goal as getting the customer from A to B as quickly as possible.

The apex of this principle is that customers who have an amazing support experience will become more loyal, and more likely to recommend your app, than customers who are just happy with the app from the beginning. An apology, done well, is a powerful thing. It’s embarrassing when your software breaks. It can be tempting to try to cover up or smooth over issues but you’ll be missing out on a key retention opportunity by not giving your customers an open answer and an honest apology.

I can’t fully explain why it works this way, but customers who encounter a small bug but then receive a sincere apology and full explanation often become more avid customers than those who had a bug-free experience. Sure, if their onboarding experience is a disastrous maelstrom of bugs, they may get frustrated and leave, but a small bit of friction followed by a personal email explaining why that happened often leads to customers more likely to stay on board for longer and even more likely to refer new customers. I’m not qualified to speak to what’s going on there psychologically but I think they feel more a part of the experience – like they are helping you build the product together – and are thus more invested in your long term success, even though they are still the ones paying you money.

So view every support ticket, not as some drudgery that you need to plow through, but a list of opportunities to create lifetime fans of your product. Act accordingly.

Attitude hacks: Providing great support as a team of one

Don’t use the Royal We

When I first started answering support requests on my product I used the Royal We:

“We are working hard on that issue for you. Please bear with us…”

But I’m not the Queen of England and there was only me working on the issue. Instead of trying to give the impression that you are a big company with a massive support team, I am of the opinion you should just use “I” and be exactly what you are. There are more customers out there who are excited to support a small, indie, startup company than ones who absolutely prefer to purchase their software from a MegaCorp.

Seriously, it’s okay to be honest

Somewhere along the way, I decided not only to just use “I” but to be more or less completely honest about what kind of a product and company my customers were interacting with. I put a picture of my face and a little intro that I was the sole operator of the product and a traveling, independent entrepreneur. I started this blog, being totally transparent about the process of building the product. I removed any veneer that implied Storemapper was a big professional product run by a team of seasoned software veterans.

At the time I thought it was risky but it has so far worked great. Many times I’ve had customers say they are going with Storemapper over some other solution because they prefer to support independent developers and entrepreneurs.

This is in the footer at all times inside the Storemapper app if you can believe it.

But don’t overshare

Honesty can be taken too far into the realm of oversharing. I used to give very detailed responses to customers about why things weren’t working a certain way. Unless you are an API business and your customers are all developers themselves, detailed technical responses to customer inquiries can be time-consuming to write and often more confusing than helpful. Give the truth, but edit it down to a need to know basis. It’s the difference between:

Sorry about that, we upgraded our Resque gem which caused Bundler to update our pg gem to a version that’s incompatible with Heroku. We had to rollback the deploy and our last database migration.

Versus

Sorry about that, upgrading a component of our software stack caused a temporary issue. Everything should be working now. Anything else I can help you with?

Apologize often and empathetically

It easy to get sucked into viewing support inquiries as an onslaught of attacks. If this sounds absurd to you then you’ve never woken up to dozens of angry ALL CAPS customer emails about stuff that you totally already explained in the FAQ if they would just bother to take a second and look it up…

It’s important to stay zen and apologize frequently. Even if you don’t mean it. Even if you’re on the 15th email with a customer with a mind-numbingly obvious question. Say you’re sorry and repeat back to them how frustrating this must be for them. A little empathy goes a long way.

Do it > Show it > Tell it

Email is an imperfect medium for explanations. The most important feature to build after an MVP is a back-end admin panel that lets you log in as your users. If they are having trouble finding a setting, log in for them and change it (Do it) and then explain how to do in the future. Sometimes you need to “teach a man to fish” but most of the time it’s an issue that the customer only needs to do once anyway, so it’s not critical they learn how to do it for themselves.

Use Skitch to show with marked up screenshots or better use Screenflow to make a quick screencast showing how to do certain tasks (Show it). These have the benefit of being more explanatory and more readily re-usable than a typed out email. Your medium of last resort should be a long-form written out instructions (Tell it). Your customers are busy and just want to move on as quickly as possible. Do It is better than Show It, which is better than Tell It.

Ping customers even when you have no updates

Let’s say you get a bunch of customer emails about roughly the same issue. You look into it and discover there is a pretty tricky bug that might take you a day or two to fully fix and push live. Your first reaction may be to dive right into the code and get to work on the fix, then come back to the customers triumphantly explaining that the bug is fixed now and all is well. Stop.

Customers really don’t like silence on the other end of the line when they submit a support ticket. A better approach is to immediately email all of the customers to let them know you received their email and are working on a fix and will let them know when it’s ready. If a day goes by and you still haven’t fixed it; send another round of short notes letting them know you haven’t forgotten about them and a fix is still coming soon.

This kind of little thing is the difference between the adequate support that will retain most customers and excellent support that will turn them into champions of your product.

The One Weird Trick: Massively over-deliver value

Throughout the lifetime of Storemapper, I consistently underpriced the service relative to its value. The starting price of $5/month was almost ludicrously low but the first version was so buggy that I just wanted to charge something other than zero.

Successful SaaS entrepreneurs will often advise you to raise your prices. This is typically good advice. Folks launching their first products, particularly programmers, have a tendency to undervalue their products so much that you can often raise prices with no negative effect on the number of new customers. This dynamic is true for most SaaS businesses up to surprising levels. You keep increasing prices by 50% and you see slightly fewer customers sign up, but net revenue continues to rise.

But there can be a hidden downside to pricing your product almost exactly at your customers’ willingness to pay. Providing great support is primarily about beating expectations. High prices often come with high expectations. Raise your prices by 50% and every single new customer now comes with those higher expectations. This can quickly ratchet up the stress level of every support interaction. The customer feels they are paying quite a lot of money and only just barely getting enough value for it. Any little hiccup, bug, or delayed response can become infuriating for them.

By contrast, keeping your prices low-to-reasonable may leave a little revenue on the table, but allows you to massively over-deliver value. If most of your customers would happily pay twice as much for your product, they will be much more relaxed with their support inquiries, and much happier to wait a few days for their issue to be resolved.

At several points with Storemapper I tested higher prices and found it would generate more revenue, but I decided to revert prices back because I felt it wasn’t over-delivering value. I Immediately felt a relaxation in the tone of conversations with customers who signed up at the lower prices.

Tools of the trade

When I first started writing about Storemapper I strongly advised against getting a lot of tools for customers support. I tested out all the major support desk products and found they were over-kill and cumbersome for what you need solo or as a small team.

The minimum set of tools you need for good customer support breaks down into three simple solutions: a single inbox to queue requests, a way to reuse common responses, and a searchable help desk site.

If you’re on your own then a shared inbox can just be a dedicated email account. There are dozens of Gmail plugins with the ability to create re-usable templates for common replies, but I like to use TextExpander because it works across all apps.

Even though there are many apps offering a help desk platform as a service, I think a simple WordPress install is the best route to go for FAQs and support articles. The main reason is that every dedicated help desk SaaS I found lacks a feature that I consider critical: a way to create internal support posts that only your employees can view and a single search form that looks across both external (for customers) and internal (for employees only) posts. This is very important as you start to build a support team and if you set up the structure right at the beginning you will save yourself the hassle of migrating hundreds of support articles later.

I recommend setting up a simple WordPress install and buying a “help desk” or “FAQ” theme for a few bucks. The KnowHow theme is the one Storemapper still uses. Then you can install any of the 1,000s of membership plugins that allow you to tag posts as visible only to members, or people logged in with a WordPress user account. As you start building out your library of support articles, you can always document some common quirks or bugs or other things you don’t necessarily want to fully share with all your customers. Tag them as members-only to hide them from your customers. When you bring on your first customer support employee, all you need to do is give them a user account for the WordPress site and like magic, they will be able to search both internal and external posts as they work through support tickets. This is incredibly useful for onboarding your first customer support employee and worth setting up from the beginning.

That’s all you need to get started.

A dedicated email, a way to create reusable responses and cheap WordPress site are all you need in the early days.

Once Storemapper was a little more mature I added Intercom as our primary support tool. We still use WordPress for the support articles but everything else runs through Intercom. I’ll go into more detail in later chapters on how we use it to collaborate on our queue of support tickets and generate all kinds of helpful automated messages to pre-empt common support issues, but in my opinion, Intercom is overkill until you have enough revenue that you are adding employees to do support.

Tactics: Automate Empathy

Ok. I’ve been going on and on about attitudes and mindsets, but let’s dig into some actionable tactics for providing great support. My overall methodology is to create a feedback loop between each support request and small tweaks to the product to make that issue less likely for future customers. You want to make each point of friction for your customers incrementally less likely over time. The most effective tool for this is empathy. Viewing a support ticket not just as a problem to resolve, but as an opportunity to get another person’s perspective on something you missed in your product. With each ticket try to understand how and why this became an issue and evaluate whether you can make a small change to the product to preempt this issue.

I call this process automating empathy, deeply understanding and learning about what your customers might struggle with in your product and building automated processes that either solve the problem entirely or provide context-specific help at exactly the right moment.

Automating empathy is a tactical framework for retaining customers. It involves regularly using your own app and really putting yourself in the shoes of your customers. Using a variety of analytics and conversations to deeply understand the points of friction for your customers. And surfacing the solutions to those automatically and in the appropriate context. My interpretation of Automating Empathy goes against a considerable number of design principles in fashion right now so you’ll have to decide on your own which one makes more sense.

Here are a few:

In-app screencasts

Any complex page of your app should have a short screencast demonstrating how to use it. For busy people (your customers) this is the fastest way to digest how to a product. Embed it right there on the relevant page. It’s very vogue these days for UX designers to say “If your product needs an onboarding video then it’s too complicated and you should just make the interface simpler.” This is BS in general and completely inappropriate for Micro-SaaS. Maybe if you have a six-person interaction design team and a budget to run usability focus groups all day, you can afford to do the iterations to get to that stage but in Micro-SaaS just use a freakin’ screencast. I use Screenflow to record screencasts with audio of myself using the product and upload them to Youtube or Wistia. It doesn’t need to be fancy or well-produced, just short, clear and useful.

Helpful UI Empty States

Onboarding is the most critical time for preventing churn and the most common source of support requests. During onboarding, your customers will encounter a lot of UI “empty states.” Their dashboard which should be full of tasks, contacts, stats, etc, currently has none of that stuff. So what should you put in the UI when the datasets are empty? A lot of designers these days love the Skeleton UI where you fill it up with a kind of mocked up sketch of what the UI element will look like when it’s full.

the ‘very fashionable’ skeleton UI for empty states

This is elegant but unhelpful. A better idea is to have the empty state show how to fill it up with data. This is a great spot for a nice in-app screencast but visual information or a link to a relevant support article can also be helpful. In Storemapper the main app page is a list of your current database of store locations, however, whenever that list is empty it reverts to an embedded screencast reminding the user how to add/upload store data.

Storemapper’s empty state: a helpful Youtube video on how to add data. A little ugly, but much more useful.

 

It isn’t the most aesthetically elegant of design solutions, but it works wonderfully well at pre-empting customer questions: this thing is empty now, here’s how you fill it up.

Custom Onboarding Flow

An even more advanced version of better empty states is a custom onboarding flow. This is becoming more common with good SaaS businesses. After sign up, rather than dumping you directly into the main app screen and throwing a comprehensive walkthrough of tooltips and popups at you, a custom onboarding flow takes the user through a series of squeeze pages (single-purpose pages without the usual navigation menus) that walk the users through the primary onboarding steps one by one so that by the time they arrive at the primary app pages empty states have been bypassed altogether. In Storemapper we found that an important first step was installing our code snippet on the customer’s website. We surveyed our users to find all the common platforms they used (Shopify, Bigcommerce, WordPress, etc). Then made short custom onboarding screenshots for each. The first page after sign up now is a squeeze page that asks the user which platform they use and provides a custom walkthrough for installing or snippet before moving on to the rest of the app. This kind of hand-holding onboarding does wonders for getting customers to key milestones in your app where you can begin providing value. You will find a small number of people signing up are just trying to test out the app for a client or future research purposes. Make sure there is some way for these customers to bypass the squeeze pages and get directly into the full app.

BCC support on critical error emails

Most B2B SaaS apps will have some kind of background processes and some method of emailing the user that “hey, something went wrong.” BCC your support inbox on these emails. Not every user will take the time to email support. Sometimes they will just try the same thing ten times, get the same error message, and cancel their account and look elsewhere. BCC’ing support on error messages lets you monitor the frequency of errors and at least gives you the opportunity to reach out and help the user. This is a quick win along the general principle of making your support process more proactive, rather than exclusively reacting to inbound tickets.

Better Error Messages

Another quick win along the theme of providing helpful information in the right context is better error messages. So often I see apps where the error message is something infuriating like “Postgres Error: record failed to save to db.”

Your error messages should follow this pattern “Sorry, but [actual thing] was not saved. The most common issue is [common issue]. You can find more info on how to [current task] here [link to support article]. Or contact support [direct email link or chat button]”

  • Humanize the language. Avoid generic programming words like
    “record” in favor of the actual thing in question.
  • Use full sentence structure.
  • Suggest the most common problem
  • Provide helpful links
  • Provide one-click way to reach support

Track and trigger off errors key progress metrics

Once the number of customers reaches a level where it becomes hard to keep track of each one individually, it’s important to start automatically tracking errors and key progress metrics. Errors are less about actual application errors in your code, but points of failure where something is going wrong in the user experience. For example, your application code may correctly handle someone entering their credit card details incorrectly and provide feedback, but you should setup something to track if this happens five times in a row and trigger a message connecting you with the customer to provide assistance. Similarly, you should setup a way to track your users through the key steps of your onboarding funnel and trigger an alert when they get fail to pass a key milestone.

How to stay sane

Customer support is hard work. It’s very easy to end up frazzled and exhausted just getting through the day’s support tickets, much less having energy in the tank to switch modes and work on the product. Here are a few tricks I’ve developed for staying sane and productive while handling all your own support tickets.

Last In, Last Answered

Answer the most recent customer questions first. The main reason for this is that customers will often fire off a support question and then, given time, figure out the answer themselves. They will almost never follow up an initial support request with “never mind, I figured it out.” You may spend 15 minutes digging into a three-day old support ticket only to find out the customer already solved it.

Remember you can only do your best

Answering a deluge of support questions can feel overwhelming and discouraging but remember it’s actually a pretty good sign. It means:

  • Lots of customers are interested in your product
  • You’re probably doing things right in terms of MVP, building just enough to keep growing customers and iterating on the product.

This means that if you are doing things really well by launching early and often, you will almost certainly generate a support request queue that you can’t satisfy entirely. You’re no longer some cog in a giant machine, being handed only enough tasks that it’s reasonable for one person to do. I had to constantly keep reminding myself, and in some cases explicitly to customers that I’m just one person and I’m doing the best that I can.

Set a time cap, then get back to product work

Great customer support is important, but if you are building Micro-SaaS or any early stage product, continuing to improve the product is fundamentally more important in the long run. It is critical not to wake up, spend 16 hours on support emails and then cry yourself to sleep. You have to set aside time and energy to work on the product to keep the business moving forward. Set a maximum daily time cap on support time and stick to it. Block off certain days where you ignore the support queue entirely. Work on product first thing and don’t start on support until the afternoon. Be proactive by prioritizing product work first. When you switch to support mode, provide excellent support, but recognize that you’ll need to set it aside sometimes to keep the overall business moving.

Chapter 6: Thriving in the Long, Slow, SaaS Grind

<< Chapter 5: Getting Your First Customers

So you’ve run dozens of ideas through the meat grinder, launched a few that went nowhere. Finally, you launch one that starts to attract paying customers. Congratulations, you’ve made it far farther than most.

What happens next?

Most SaaS businesses will at some point encounter “the long, slow, SaaS ramp of death.” Take a look at two examples. Baremetrics was a rocketship (by bootstrapped SaaS standards) going from idea to $8,300 in monthly subscriptions in just six months. As a solo founder, this is about as good as it gets for a SaaS launch. As the revenue poured in they raised a bit of money and staffed up for the hockey stick revenue growth to come. However, most revenue charts end up looking like this:

source: https://blog.baremetrics.com/how-we-went-from-weeks-of-cash-left-in-the-bank-to-profitable-in-8-months-cfad6f2d6523#.s9mr0jbub
source: https://blog.baremetrics.com/how-we-went-from-weeks-of-cash-left-in-the-bank-to-profitable-in-8-months-cfad6f2d6523#.s9mr0jbub

Baremetrics almost ran out of cash because of slow grinding revenue growth, but after making some tough changes, they found their way to profitability1.

Convertkit, an email marketing app, had almost the inverse experience. Nathan Barry spent over a year and a half with monthly recurring revenue (MRR) hovering around $2,000. His long, slow, grind happened right at the beginning because eventually they found the right product/marketing combination and took off. Two years later Convertkit is running at $600,000 a month in subscriptions!

My business, Storemapper, was a grind in the beginning, in the middle, and basically still is. Revenue growth has been more or less linear since it’s late 2013 launch date. While I certainly wouldn’t complain about a period of hockey stick growth, a consistent grind is not entirely a bad thing. For one, it’s predictable. I haven’t had to deal with any of the cashflow crunches that fast-growing SaaS companies seem to inevitably run into. It has also allowed me plenty of time to develop strategies for managing, and thriving, in the long, slow, grind that is SaaS.

The power of SaaS is that recurring revenue compounds, eventually yielding a very predictable stream of revenue. But it can take a long time to get there. For many Micro-SaaS businesses, it seems to take at least a year before the revenue can meaningfully affect your lifestyle: either allowing you to work full-time on it or hire people to help you run it. Before you launch, consider how you will manage your life if you have to keep your day job and run a growing Micro-SaaS on the side for a year. Here’s what the first year looked like for me.

Year 1: From beer money to rent money

On my Micro-SaaS journey, this was the full year of 2014. Monthly recurring revenue chugged slowly upward from $150 (beer money) to $2,180 (rent money… yes, in Brooklyn that is barely rent money after taxes). The funny thing is that is actually pretty healthy month over month growth. By all accounts not bad, but still, more than a year later, nowhere near enough to live on in the US.

During that time Storemapper was a side project for me. My main focus was a solar energy startup, which was immensely time-consuming. I wanted Storemapper to grow, but I categorically refused to let it become my primary focus. Except for a few minor crises, I capped my time allocation at 15-20 hours per month. That’s product development, marketing, and support. This is a kind of extreme test case as most folks will not build a Micro-SaaS while founding another startup and will have more like 15-20 hours per week to spare.

In my case the time constraint was mandatory. I was working insane hours already and literally did not have the spare time and energy to put more effort into Storemapper in the early days. But I think it’s a great idea to put a time constraint on yourself even if you have more time to spare. Setting a limit of something like 15 hours per week is beneficial for a number of reasons:

  • You have set a manageable path for yourself. Telling yourself “I’ll do whatever it takes to make this successful” is a recipe for burnout.
  • It’s not mutually exclusive with having a life, a family or a day job.
  • You will build a tighter, simpler product and customer acquisition funnel.
  • You won’t be tempted to over-fiddle. A big part of being successful through this stage is making changes and then doing nothing. Just waiting to see what happens and not overreacting to every single new customer, bug or feature request.
  • Parkinson’s Law: if you allocate 60 hours per week (or unlimited hours per week) to this you will spend 60 hours per week, but 50 of them are unlikely to be very productive.

Most of the first year of Storemapper I spent refining the customer onboarding process. That meant setting up a little automated onboarding tips, making screencasts and FAQ docs, fixing endless bugs with the CSV upload process. It was a lot of individual customer support requests, devising a few technical solutions for scaling problems, and shipping maybe three or four major features over the whole year. For customer acquisition, I primarily doubled down on the few channels that had brought in the initial customers: posting in e-commerce forums and looking through freelance job postings. Over the course of that year, I launched two quick growth hacks. The first was adding the “powered by Storemapper” link to the bottom of the store locator app (a must for any embeddable product) and the second was integrating with the Shopify app store, which allowed us to be listed in their app directory. That was basically it for a year of work.

The rest of this chapter will focus on the mental strategies I developed and learned from others for staying sane through a period of long, slow, SaaS grind.

How to keep growing while staying sane

This is the part where you can easily drive yourself crazy. Relative to the actual value of the nascent business you’re building you will still spend a disproportionate amount of time dealing with grumpy customers, manually onboarding people, frantically deploying mission critical code at the last possible moment. Here are a few ways to keep sane during this period.

1. Don’t compare the hourly rate

If you’re transitioning from freelancing or consulting where you charge a healthy hourly rate, a great way to drive yourself bonkers is to start adding up the hours you’re working on your Micro-SaaS business and divide by the revenue you actually get from that customer. Do that arithmetic right in the middle of a particularly frustrating customer that is taking 4-5 hours of your time, spread out across two weeks to finally subscribe to a $20/month plan. Early on that number will be hilariously smaller than your hourly rate. Don’t do this math. It’s a complete apples-to-oranges comparison. When you do one hour of freelance work, you get paid exactly that hourly rate and that’s it. The hour is gone forever and you just have that cash. By contrast in SaaS, every single frustrating minute with a problematic customer in yields a better understanding of the onboarding process, shaving time and headache from every subsequent customer for the rest of time. Every customer that you successfully onboard is another happy potential referrer of new business. SaaS is much more scalable than consulting and every new referrer can compound nearly infinitely. Tell yourself that, then go back and edit your 35th email to that customer and make it just a little bit more polite and friendly 🙂

2. Become a stoic, mentally walk thru disaster

One benefit of building and launching a product extremely fast is that you don’t have much sunk cost, time and energy already invested. If the app explodes and everybody angrily demands a refund, you really haven’t lost that much. Remind yourself of that when things become really tough.

Take a moment and visualize just walking away from it all. Visualize it in detail, what would you do? Write a pleasant email to all your customers, thanking them for their trust and suggesting some alternatives. Add up how many refunds you would have to issue. What services you would shut down and so on. Then look at that, compare it to your current stress levels and decide which one you want to do. Maybe it’s shutting it down, but more likely you’ll convince yourself that it’s still worth it. Then get back to work 🙂

3. Don’t spend a dime on marketing

The very tired cliche that “marketing is like sex, only losers pay for it” applies in Micro-SaaS. Everybody who writes about SaaS startups will talk about how you calculate your customer lifetime value (CLV) and how much it cost to acquire that customer (customer acquisition cost, CAC). As long as CLV is some nice multiple higher — say 3x — than CAC, you should spend, spend, spend!

And this makes total sense… if you’re sitting on a pile of VC money with no other mandate than to grow as fast possible. But Micro-SaaS doesn’t work like that. To build a defensible and profitable business with reliable, low-risk income you want a CAC of $0.00 per customer.

I’ll admit, I am strongly biased here by my own experience. I was reading those growth-hacker blogs and I did think in terms of CLV/CAC. The appeal is that once you find one acquisition channel with a great ratio, you can breathe a sigh of relief. Nothing to do now but re-invest profits or pile more money into that channel and you’re golden. I wasted a lot of time looking at Adwords, Facebook and Twitter ads. After giving up myself, I set out on a hunt to find a consultant or partner to help with it. I cold emailed the most well-connected marketing and SEO blogger I could think of asking for help. To my delight, they sent back a few introductions and shortly thereafter I struck a deal with one of them to do Adwords marketing. We set a steep growth target, but if they succeeded, they’d get a bit slice of equity and revenue from the business. Five months later Adwords barely moved the needle over organic search and we shut the whole thing down.

Maybe it was coincidence, but every time I tried a strategy that involved buying customers I’d waste a few hundred dollars and dozens of hours to get nowhere. Maybe you’ll find a paid marketing channel that works great, but my experience is that it’s not worth the time and frustration, particularly at this stage of the business.

4. Don’t build features until there is a revolt

While building Storemapper, I kept a detailed backlog of features to build. Both things that I thought would be a good idea and things that customers requested. It was — and still is — hundreds of tasks long. This is intimidating but ultimately a good thing. Resist the temptation to grab a 4-pack of Red Bulls and power through everything in the backlog. Every new feature you build adds an exponentially larger time commitment to supporting and explaining that feature to new customers. It’s much harder to remove a feature than to never have it.

Don’t build a feature until a very large number of potential customers refuse to sign up without it, or a large number of existing customers threaten to cancel without it. That’s the very high bar for actually writing code. If your customers aren’t outside your castle keep with pitchforks and torches over the lack of a feature, it’s not the time to build it yet.

5. Don’t Pre-build For Scale.

Your Micro-SaaS business is not Kim Kardashian’s naked backside and it likely won’t #BreakTheInternet.

If you’ve done the work right to this point. The business idea is solid and the MVP delivers real value. The speed at which you get new customers increases linearly with their patience for scaling problems.

What does that mean? Well, Storemapper had some small scaling issues here and there that I had to solve quickly and under pressure. Store locators went down a few times. Our geocoding back-end was overwhelmed when our customers went from having 100s of stores to 1,000s. But it was clear to customers that this was the solution they needed. I emailed them and was open and honest about what was happening and thanked them for their patience. Almost universally these customers stayed paying customers and actually often would write me little notes of encouragement.

Pitfalls of running a growing side business

In this last section of this chapter, I want to go through a couple of problematic areas of running a growing side business. These are tangents that can suck up a lot of time and energy along the way if not handled correctly. As a side-business starts growing the most important thing is to keep focused and executing on the core business. Running a growing side business, particularly if it is your first real side business, has a number of distractions. I handled almost every one of these badly, so I guess you can make it out alive but you may as well learn from my mistakes.

Accounting, Bookkeeping, and Legal

This one is worth dealing with as soon as your business starts to get at the “rent money” level. Accountants will advise you to setup a separate bank account and business entity for every project from the very beginning. This is probably extremely impractical, especially if you are using Lean principles and expect to launch several MVPs that are likely to fail. But once you get to a decent level of revenue and it looks like the business will be around for a while, you should definitely get a basic checking account and bookkeeping started.

It is going to be very helpful to at least have all the revenues and expenses in their own accounts, separated from your rent and burrito transactions, even if they are not technically business accounts. I would recommend getting a separate checking account and credit card that you only use for transactions on any and all MVP businesses. Once you start to see real traction you can create a simple business entity and open accounts in the business’s name. I made the mistake of going about two years mixing business with personal checking and credit card accounts and the resulting bookkeeping was a huge nightmare once I finally started to clean up my books.

I’m not at all credentialed to give real advice on this topic so do your own research and talk to an accountant.

Partnerships

I made the decision fairly early on to be transparent and open about my business. That meant a steady stream of inbound emails of people looking to partner with me. Everything from cross-selling, affiliate deals, content marketing services and consultants. When your product is young and fast-growing lots of people will propose integrations and synergies and all kinds of strategic relationships that sound vaguely appealing at first glance.

On the whole, these were a giant waste of time for me. Partnerships are messy. Ideas that initially sounded sensible turned into a quagmire once we started digging into the weeds, discussing how risk would be allocated, and discussing in advance what would happen if the relationship didn’t work out. Most of the time people actively reaching out about a partnership of some kind are looking for a quick win or looking to get someone to agree to a disproportionate amount of work without realizing it. I would advise moving those discussions to the bottom of the To Do list or straight to the trash.

Acquisition Offers

I wasted a lot of time discussing potential sales of Storemapper. Partly I brought it on myself. I learned a lot about staying sane during the long, slow, grind but there were times where I did a bad job of it. Running it along side a startup was difficult and I often thought about selling it to re-focus my time on the startup company I was actively working on. I wrote a short post on a forum soliciting offers and quickly got dozens of responses. This turned into a continual giant waste of time for the next 12 months. Fairly early in the process, I figured out it was not worth my time but I kept taking the conversations out of a curiosity to see what buyers thought and what kind of valuations they had in mind. Let my pain be your gain and save you a ton of time.

There are many people in the business of “buying websites” that made their money flipping ad-supported sites or simple e-commerce and drop-shipping businesses. Those businesses have historically been available for as little as 6-12x monthly profit, less than one year of the expected revenue in your pocket. SaaS businesses are much more valuable and a good estimate of value is closer to 3.5x yearly profit. Although it’s slowly changing, many buyers are anchored to the old valuations and even though they sound very confident they can get a deal done, it turns out on the fourth or fifth call that you are miles apart on pricing a deal. If you are going to engage with a potential buyer, firmly mention your target valuation multiple early on in the first discussion.

If you have traction and good solid growth there is a huge mismatch between how much you value the business and a buyer’s willingness to pay. You see growth in revenue every month and all the possibilities for new features, new markets, new customers. You view holding on to the business and growing it yourself as an extremely low-risk way to pocket more profits and grow the value of the business. Your buyer, on the other hand, sees and unproven business without a track record. There are two likely situations where you would actually sell a Micro-SaaS side business. The most likely is that something changes in your life situation where you just don’t have the extra time for it. You’ll take a hit on the valuation but a reasonably priced Micro-SaaS side business is a very sellable business with many potential acquirers. The second possibility is a so-called strategic acquisition. This is where a larger business buys you not just for the cashflows from your existing business but because you either compliment their products or compete with them. In these cases, pricing is more about willingness to pay rather than a multiple of profits and likely much more attractive. These seem to be exceptionally rare in Micro-SaaS and the only recent example I can find is Drip, an email marketing SaaS, getting acquired by LeadPages.

The bottom line is that it is extremely unlikely you’ll get an attractive enough acquisition offer during this phase of your business to make it worth the time suck of talking to buyers. Much better to spend the time on growing your business.

  1. Props to Josh Pigford for putting all this out in public as a lesson for others entrepreneurs. It is much appreciated.