Patrick Campbell (@Patticus) grew up as farm boy from Wisconsin. But after getting tired of working in bureaucratic environments, he cashed out his 401k to bootstrap his own business in 2012. Patrick joined the show to discuss the importance of finding the root cause of problems in your startup, to talk about why pricing and churn are major levers of growth that shouldn't be ignored, and to share how he grew ProfitWell to over $10M/year in revenue.
What's up everybody? This is Courtland from IndieHackers.com and you're listening to the Indie Hackers podcast. On this show, I talk to the founders of profitable internet businesses and I try to get a sense of what it's to be in their shoes. How do they get to where they are today?
How did they make decisions both in their companies and in their personal lives? What exactly makes their businesses tick? And the goal here, as always, is so that the rest of us can learn from their examples and go on to build our own profitable internet businesses. Today I'm talking to Patrick Campbell. Patrick, welcome to the show.
Yeah, happy to be here. Pumped to chat. I know, like I said before, we had to reschedule this a couple of times. So, I'm excited to hopefully share something that's useful to folks.
Excited to have you on here. You are the founder of ProfitWell, which is a pretty amazing business. You started back in 2012 and it has grown super rapidly since then. I want to walk through just a couple of numbers to give listeners an idea of what you're working on. What's your revenue today at ProfitWell?
We are past the 10 million mark, essentially. It's a little bit tough just because we're going so quickly. It's one of those things where giving you the pinpoint as of today, we typically don't try to do that, but we're past that 10 million mark, and heading to the next 20 or 25 as we're trying to go.
You are past 10 million in revenue. You are a first-time founder, correct?
Yup. First time founder, unless you count selling animal crackers when I was a kid in school, but that was a long time ago.
Okay, yeah. We won't count that. You are a first-time founder. You're also bootstrapped, I believe. So you haven't raised any money from friends and family, angel investors, venture capitalists or anything that?
No. We, well I, started the company by my mid-twenties. I cashed in my 401k, which wasn't very large because I was pretty young. Completely bootstrapped and haven't raised any outside capital, but there's been a lot of other costs besides not raising money.
Yeah, we'll get into those. But overall, it's a pretty rosy picture. You are a first-time bootstrapped founder who has built an eight-figure business. I'm pretty excited to ask you a ton of questions about how you did this because I just so happen to know a lot of first-time founders with no investor connections who would love to build a $10 million a year business. Why don't you explain for us what ProfitWell is and why people use it?
We basically focus on what we to call the hard parts of subscription growth. We have a suite of software products that basically help subscription companies with a few different things in their business. One is a free subscription financial metrics product, so it plugs right into Stripe or whatever billing system you're using.
It gives you access to your cohorts, your segmentation, benchmarks, bunch of other things, so you can do all of your reporting and hopefully find different problems or root out different problems in your business. And we give that away for free. And so the way that we make money is we essentially use that to show you different problems and opportunities.
And then some of those opportunities or problems we solve, we have products that help. We have a retained product that takes care of involuntary churn. We're heading into a world where we're going to start going after voluntary churn as well. And then we also have a product called Price Intelligently, which was our first product that essentially did -- it's software that basically helps figure out how you should be optimizing your subscription pricing.
So you help founders with the hard part of growing their subscription revenue. Are there any easy parts to growing subscription revenue?
I think there's paths of least resistance. Just read 10 growth articles and there's a bunch of paths there saying, "Hey, do this, add this, do this type of blog post." These types of things.
Long story short, it's one of those things where there are easier parts than others. I think when we say hard parts, it's more of just looking at the things that no one's spending enough time on that they should be spending time on, and trying to attack those problems versus being one of a thousand products that are trying to solve the problems that everyone's thinking about every single day.
I want to talk about how founders can prevent some of these problems. You've got a ton of data on this. You've also spent a lot of time educating your customers and educating yourself about how to solve these problems.
How much do you think getting around these problems of churn and getting around these problems with knowing how much to charge, etc. How much of that do you think comes in the early days of just picking the right market, picking the right business to work on, and how much is a result of the subsequent decisions you make?
The tactical and strategic decisions you make after you've already decided what your business will be?
It's a really good question. When you think of something like churn, there's a core part of your retention that no amount of tactics, tools, software, etc., are going to solve, and it's the same thing with monetization. There's no amount of tactics, ending your prices in nines, these types of things, that are going to solve. You do not have the right market, you're not selling the right type of product, or you're not selling to the right type of person.
And so, I think in the early days, the things that you do for retention and monetization and even into the long term, there are still these things that you need to do that are fundamentally at the core of solving those problems.
Picking the right market, picking the right product, building the right features, positioning the right value proposition. A lot of that is what we help with on the Price Intelligently side, both in the early days and the extended days. As you continue to scale and you start scaling a business, there's a bunch of tactical things that you can do to take care of the mechanical parts of churn as well as the mechanical parts of pricing.
I think what ends up happening is, we just assume for both retention and monetization that we know that they're important, but things are just scaling, and things are just going and therefore we don't have to focus on any of the tactics. Or things aren't working out, and so we can just focus on what we think is the path of least resistance, which is acquiring customers, acquiring users.
It's just breaking down each of these things into the sum of their parts and then working in a way to understand what you can control and what you probably can't control or need to dive more strategically in on.
I think if you talk to any founder off the street, mostly what people are talking about, mostly what they're worried about is acquiring new users, growing, getting their name out there. I don't hear very many people having conversations about some of these deeper topics like churn.
How much do you have to educate founders and let them know, "Hey, this is something you should be paying attention to. There's actually a lot of revenue you can unlock by fixing churn," and how much of it is people coming to you once they've already experienced these problems and they know how important they are?
It's pretty fascinating. And this is a particular problem in our business because if you go ask 10 people, "How would you solve pricing or monetization inside your business?" Or you go ask 10 people, "How would you solve delinquent churn?", Which is where we started with our retain product or even certain aspects of voluntary or active turn.
Most of the time they just don't know because they never really have thought about these things, or they know that they're important, but they're such big, scary problems, like pricing, that these smart capable people, they don't just realize, "Oh, you should just apply the same type of thinking that you do to building your product, building your company, managing your team, etc., in order to solve those problems." The short answer is, we have to do a lot of education.
I compare it to something like pet insurance. Pet insurance wasn't really a market 10-15 years ago, but all of a sudden, you would get educated on, well, you should get pet insurance because if you don't and something goes wrong, Fido, who's now a pure member of the family where maybe, 20-30 years ago it was the dog outside, could get hurt.
Similarly, our products, it's like, if you realize the actual impact that'll happen, it makes sense to take care of things. That's why the people who are really hot to trot or come in and are like, "Oh, we need this product."
Those are typically the ones that are in a little bit of a precarious position where they're investors or their boards or their advisors are like, "Hey, you really, really need to fix this." Or, they're in a situation where they finally came to the light and other things aren't working. And so they want to solve their problems through these growth levers and channels.
So a lot of people listening are super early stage founders. They might have no idea what the hell we're talking about. They might not know why this is important. So why don't you give us the pitch? I'm an aspiring founder, I think I'm gonna start a company. Why would I care about any of this stuff? Why does it matter?
Here's the thing. In any part of your business, you only have so much time, right? And when you're in the early stages, you need to be on the quickest path to learning. What ends up happening is, you eventually will figure something out through either brute force, clever thinking, some good research, these types of things.
As you then start to build your business, after you've figured out the product, you get some really early customers, maybe they're friends and family, you're going to start to want to grow your business. And you hopefully have figured out some traction or hopefully figured out some ways to acquire more customers, but what ends up happening is you have to realize that after you get a little bit over that freshness or that, "Oh my God, we got our first customer" stage, you have three growth levers.
You have acquisition, you have monetization, and you have retention. In a subscription business in particular, and even if it's not a subscription business, what ends up happening is, those retention growth levers and those monetization growth levers, those are the ones that essentially are driving a vast majority of your growth.
Because the whole point of a business is to have repeat customers or have that subscription going forward. Ultimately, what ends up happening is, you need to focus some time on those parts of your business, not just on, "Hey, let's write another blog post. Let's get another couple of ads written. Let's do X, Y, Z."
Instead, making sure that you're building a sustainable business, not one where you're putting a dollar in and getting a customer, and then all of a sudden that customer leaves you almost immediately because they didn't feel they should have that product, or they're not necessarily seeing the value that you're charging them for. Ultimately, you want to make sure you're aligned to that customer and it takes more than just making that customer come through the door.
It's such a great way to put it. There are these multiple levers that you can use to progress in your business, and the worst thing you can do is be completely blind to two out of these three levers. To be stuck and be like, "Oh, my business isn't growing, and I keep pushing on this one particular lever and it's not going. I guess I've got to start something new."
It's like, "Well, no, you never really looked at your pricing. You never really looked at these other different channels that you can use to grow." One of the things that's really interesting to me about your story is that, what you're working on is, you're helping companies solve these really difficult problems.
These are problems that are hard for people to solve on their own when they're extremely incentivized to solve these problems because they'll make a lot of money, they'll be successful founders, etc. I can only imagine how hard it is for you to come in and try to solve this as a third party. I want to walk through your story and how you grew ProfitWell, and how you've iterated to the point where you are today, because it's a wind-y path that you took.
That's maybe a nice way to put it, or charitable way I suppose.
Well let's go back to before your ProfitWell days. You were at a startup, I believe, before ProfitWell, and you also had a stint at Google, and before that you worked for the NSA, which means you are probably the closest I will ever come to having a spy on the podcast. What was it like working for the NSA? Is there anything useful you learned there that you could share with us?
No, no, no. I'm going to have to kill you after this podcast. No, no, no... So, it was super fascinating. I'm a farm boy from Wisconsin originally. I fell in love with numbers, and solving problems, and finding solutions, and so, I studied economics. I thought I wanted to be a lawyer, but as I was studying economics, I was like, "Oh, there's other things I can do. Maybe I can go try and save the world by being in Washington DC. I Just love that city."
I ended up finding through an internship, this other program in the intelligence community. It's like everyone with the intelligence community. If you've ever watched a movie about the military, or spies, or read a Tom Clancy novel, there's always a little bit of romance to it.
And so I was like, "Oh, this will be interesting. I hear applying is a terrible process, and it's really hard to get into, so let me try it. I went through a bunch of different tests including a full-scale polygraph, where you -- I don't think I'm even allowed to tell you the whole process there, but basically, I got everything checked. They interviewed my neighbors from my childhood, most of my close and personal contacts, and all that fun stuff. There's a lot of things you have to do to get a top-secret clearance, essentially. It was probably one of the most fulfilling jobs I will ever have in my life, and I would argue, this is a really hard thing to argue, that it's almost more fulfilling than my job here building a company.
The reason is because even if you're essentially an entry level Intel Analyst, like I was, you're doing things that have an impact on helping the world and helping, specifically, the United States. And so there's this level of mission and this level of patriotism. I'm sure it's very different and more intense if you're in the military or you're a public servant, but it was really, really fulfilling.
And in terms of things I learned, I think that we don't learn enough about critical thinking when we're taught in school. Unless we have debate or something like that as an extracurricular activity, it's really rare for you to learn about critical thinking or have someone teach you how to think.
I think what was beautiful about having that as a first job was that, at the NSA and the intelligence community, your whole job is to figure out how to think in order to get some solution to a problem. Whether you're trying to find a bad guy or a bad gal, or find a connection to a bad guy or a bad gal, or you're trying to solve this giant puzzle of, "How do I figure out how these things are connected?"
I have to find out some mission or something like that. I'm being intentionally vague just because I can't get too far into what I did. I know that sounds so mysterious, but it's just the nature of that job, but that was one of those things where without the courses, and the mentorship, and the advisement that I got, I would not be here today without having that stint there because I learned how to think.
One of the things you mentioned is that we don't really learn how to think in schools. It's something you have to learn or stumble across afterward. You learned that a lot at the NSA. I find that people I talk to can always remember back to their early twenties or some point where they first stumbled onto something or someone taught them how to think.
For me, that was reading Poor Charlie's Almanack. That book just changed my life. I was like, "Oh my God, there's so many different things." There are so many ways to be, I don't know, a meta-thinker, to be more psychologically aware of how my own brain works, how my own thought processes work, that have served me super well throughout the rest of my life so far.
You gave a talk at MicroComp earlier this year and one of the things you talked about that I liked a lot was the way that you break down your decision making. You have this whole framework for how you want to analyze the cause of a problem rather than just the symptoms. Which is pretty solid to have because as a founder, you obviously run into tons of problems.
If you can't analyze them correctly, your business is not going to last very long. Can you break this model down for us, if you even remember what I'm referencing?
Yeah, 100%. I literally whiteboarded it today to a new hire. I talk about this all the time, and I think that, just to give a little bit of background, when you're starting a company, and especially if you're in the early stages and especially if you're bootstrap, not all of us have the security and the confidence to change our LinkedIn profile to CEO or Founder and then deal with people who don't understand that life.
I remember when I was early on, I was embarrassed to call myself a CEO because the joke was, "Oh, this means you're unemployed, right?" Being an entrepreneur, and I know Patrick McKenzie talks about this all the time, Patio11, for those of you who don't know his actual name, because I know he goes more by Patio11 than anything.
You know, especially, I believe it was his wife's family just didn't understand being an entrepreneur. But I bring that up because your emotional levels when you're starting a company, and I would argue at most stages, is constantly being tested because you not only are trying to create something from nothing, but you're also taking that something and trying to scale it.
And then as you scale it, you have, even if you're just trying to create a lifestyle business or an indie business, you have just increased the surface area with every move you make, any person you hire, any contractor you manage, any additional feature you add, all of a sudden, you have more surface area in your business.
And, you need not only frameworks in your business in general to handle that surface area properly, even if it's super simple, but you also need frameworks to understand and handle the emotional aspects of that business.
And that just doesn't mean not crying yourself to sleep or not blowing up at your significant other because you're aggravated and pissed off about something that happened in the business, but it also means how you handle problems. Because the number one problem I found that I had a problem with is that I thrive on crisis, and I thrive on reacting.
If something bad is happening, or even if something good was happening, and a lot of founders have this, all of a sudden, I would either create the crisis or I would enjoy the crisis, and I would basically react and I'm like, "All right, I gotta solve this problem." The issue there is, oftentimes when you react, you just try to guess-and-check your way to a solution.
Meaning, "Oh my God, this person's upset with me". "Oh my God, my competitor just tweeted this passive aggressive thing to me." "Oh my God, this thing happened." All of a sudden you sit there, and if you just react, meaning if you just enjoy the crisis and you instantly react without stopping and thinking, AKA guessing and checking.
It has a lot of, really bad externalities, because you haven't thought through the chess game, even if it's a very small chess game of "Hey, what is this customer trying to get at? What is this person trying to do?" You tend to freak out if you don't do that. So the framework that I recommend is, when you have that crisis, get to a point where you take what's called "the most charitable interpretation" of that situation.
Meaning, "Okay, my competitor just tweeted this passive aggressive thing. I have to go figure that out. I have to give him the most charitable interpretation." I have to go, "Okay, this person thinks there's something wrong, or this person is doing XYZ." This handles even a support request that comes in. This person's upset for some reason. Maybe they're valid, maybe they're completely right. That's the most charitable interpretation.
And that gives me that extra second to then think through, "What is the framework through which I can evaluate what to do in this situation?" The one that I described to you was problem-cause-solution. What this means is that when you have a problem, and it maybe it's a support request where someone's aggravated, it could be, "We're not growing," it could be, "My loved one is mad at me."
It could be a whole host of things. A lot of times what we want to do is, we want to do that guess-and-check with that problem. We basically want to respond and be like, "We gotta fix it, we gotta fix it, we gotta fix it." The issue there is, you can't solve a problem. You can only solve causes of a problem. If we take world hunger, which I think we all can agree is not great, even the most amount of money, you can't just throw money at this problem and fix it.
You have to think through, well world hunger is caused by a whole host of things. Bad irrigation in certain areas, fraud when aid is sent to certain areas. Poor circulation in crops, it's caused by the money going to the wrong people. They found that with women's funds. If you give women in developing countries the money, it actually goes to developing the economy.
That's a really funny article. If anyone hasn't read that, look that up. Anyway, I have a bunch of causes of world hunger, and now what I can do is, I can evaluate, what is the biggest cause is here? Then, based on that, I can solve for those causes. So, if irrigation is the number one problem, well then maybe I should be building irrigation systems in these areas that have hunger issues. If fraud is the problem, maybe I should go a political route and go through the state department to try and fix the fraud in some particular way.
With really big problems like world hunger, there's cascading causes, and it takes a long time to get through those, but with that support ticket where someone's aggravated, it might be, "Well this person, yes, we have an answer to their question, but the cause of this might be that they weren't able to get the right numbers and therefore, they looked bad in front of their board."
Or, "They weren't able to access this because there was a hiccup or a bug in the system." So, when I understand those causes, I can then more appropriately give a solution, and sometimes the solution is not to do anything, but with a negative support ticket, I can then do something that's super empathetic.
I can say, "Hey, I know that's really frustrating" and now I've thought through it, and then I can give them the actual solution and then even make up for it. And so, the bottom line is, problems need causes, and then you can solve for the causes because those are the things that will affect that actual problem.
"Can't solve a problem. You can only solve the causes to a problem." You, at some point, decided that you wanted to start a company. Do you feel you were solving a problem by making that decision, and if so, what were the causes of that problem and how did starting a company solve them?
I think, honestly, I started a company out of pure hubris. Being a punk, mid-twenties kid. I think that that's really where it came from. I worked at the Intel community. I was aggravated with the bureaucracy. One of my mentors, they were joking, and they said, "Oh, that's so and so. They've been here 30 years and they haven't worked in the past 15." And I thought it was just a funny joke, like, "Oh, we're ripping each other."
And then they were like, "No, this person just can't be fired because of government bureaucracy and things like that. It just wasn't moving fast enough. I'm a little bit of a momentum junkie in terms of growth and building things. I thought going to Google would solve bureaucracy, and in fact, Google is a really, really nice bureaucracy.
I was there when it was, like, 30,000 people. It was a big company at that point. I had worked on some cool stuff that was similar to what we're doing now with value modeling on the pricing side. I was ironically using models to find more money for Google. Interestingly enough, very similar models that I was using to find bad guys or gals.
What was cool is, I worked on this project, it was essentially a glorified lead-scoring algorithm for the midmarket sales team that I was on. I did it on the side. This was when I was learning to code and learning to do data visualization, taking a lot of my econ understanding and making it useful.
Essentially, what ended up happening was I made Google a ton of money, which was great for them, and I got this cool award, but they wanted to shut my project down because there was this other project that was going make them more money, and I needed to go back to doing this other job because this was a side project for me at the time. That that didn't sit well with me and I was like, "Oh, I don't like this. I don't this lack of control."
That's why I say it is hubris because I was like, "Oh, I can go start a company, I can work for myself, and it's going to be amazing." Thankfully, the smartest decision that I feel like I had no intention of doing was, I went and worked for another company called Gemvara, which was a customizable jewelry company like Blue Nile.
Basically, you could customize the gemstones, the metals, these types of things. They threw to me this somewhat entry level, not actually entry level, but a younger person, the pricing problem to fix. They had 1.6 million different skews there, and I was working on it, and we would make these little changes to pricing here and there and we'd see these really outsized increases or decreases in revenue based on the changes that we made.
I was there for about nine months and I wasn't really enamored with the culture. You're probably sensing a theme there. Basically, it was like, "All right, well, I'm in my mid-twenties. I don't have any major financial obligations." I very, very much thankfully had a merit scholarship to the college that I went to. I didn't have any big student loans.
I jumped out and was like, "I'm going to start a company, and I think I'm going to do it on this pricing thing because it's a big problem," and I discovered that no one took it seriously because it was something that was relatively hard. Ultimately, it was one of those things where I knew it had an impact, and if I could evangelize that to folks, that could be a company.
I think we started off with that concept of "This is something that works, and this is something that people don't understand." That was the framework of thought. It quickly moved into, "Okay, how do we solve the pricing problem? Because the root cause of the pricing problem is people aren't doing anything." Right?
And then it's like, "Well, what's the cause of that?" Well, people aren't doing anything because they don't know what they should be doing. And we were like, "Okay, what's the cause of that?" Pricing is this weird thing that they just don't know what to do.
Not because they're not smart, but because they've never done it before, or they don't have enough confidence in trying to figure out the problem so that they can implement things to make their pricing better. That was the biggest root cause we found was this confidence gap. And we were like, "Oh, okay. Well, let's build a product that can basically close that confidence gap."
The initial product we built was a survey tool that had some algorithms we built into it, and, essentially, you'd go out and you'd collect some data. It would go through these algorithms, and they would spit out some price elasticity information. And some relative preference information, which would hopefully give you confidence in order to make a decision.
Well, what we found is that that solution for that cause wasn't enough because we would have people who would go, "Yeah, I see how this data tells me to do this with my pricing, but I don't know. Can you just come talk to my team? Can you just come talk to my team? Can you just help me implement?"
And we were like, "Wow, that's service. Like maybe we should do that because VCs don't like that." This is when we didn't know if we were going to raise money, not raise money. And so, we were like, "Well if you pay us, sure, we'll do it." And they were like, "Oh, okay, yeah. We'll pay you this much." "This much", I think, for our first deal, was $1,600.
Keep in mind, we were selling $50 a month software here. I keep saying "we", but I was essentially a solo founder. I had some advisors early on, but it was just me doing this and I was like, "Well, let's take the $1,600". Then the next person was like, "We'll pay you $10,000." Then I was like, "Oh, interesting."
That started to solve that root cause, and there were a bunch of other problems and causes that popped up over time, but that's what led us, and that was within those first six months of figuring that out and digging deep on it. And then, we went to the races with this bigger vision that we've headed down.
That was the thought process that that really occurred, and that's why I encourage a lot of first time founders, if you're starting new product, you got to really get to that root cause, and that root cause of why they have that problem, that itch they need scratched, that's really where your product should be.
I think oftentimes when we start with, "Hey, this is a problem," people need to connect. People need their sales data and their marketing data. We end up building things that are more like a spreadsheet organizer rather than building just an API integration. If you do a little bit more thought, it allows you to figure out more of an elegant solution or at least the more impactful solution if you do that analysis.
How do you do that analysis? It sounds like you are super good at honing in on the cause of the problem, and the cause of that cause, and the cause of that cause. Do you remember the process you were going through to learn all this information?
That's a great question because I say it, hopefully, somewhat elegantly right now in a pithy one minute to ninety second soundbite, but it's a struggle. I think what really helped us and me at the time was, one, knowing that this is a journey, a longer journey.
Meaning, "Yes, let's do a bunch of things that don't scale,” as they say. But let's also make sure that we don't go all in on something until we realize where we're headed. I think that's the biggest thing because what ended up happening is, first we had this little tool, we had some people using it, then we had some people through our content contact us, and we let that customer guide us forward.
And the biggest thing that we did to remain thoughtful, and I don't think I did this intentionally. I think it just naturally happened with the cycles of the business because I was doing everything, is I would have these little lulls where I get a customer, do a bunch of stuff for that customer, or get a customer, talk to that customer, prospect, etc.
And then, there would be these little lulls where I needed to go out and get more customers. Those lulls allowed me to really think deeply about what in the world is going on here and just be strategic. My biggest tactical recommendation here is to take whatever you're trying to do and whatever you're trying to solve, and probably start with something that's a little bit more finite, not world hunger, which has so many different layers, but, "Hey, this ad campaign isn't working."
If it's just a search ad for instance, you have the copy, you have the keyword, you have the landing page. All of a sudden, there could be multiple causes on those different levers. That that allows you to then compartmentalize and get your strength in terms of this type of analysis, and for us, on a tactical basis, I would just write this stuff out. I would have a problem, I would have a cause, and I would have a solution.
You just have to iterate on it and actually get it out of your head and get it onto a page. Eventually, we got our CPO a couple of years into the business, Facundo, who is a principal engineer and then became a stereotypical product guy.
I mean that in the most loving way in the sense of wanting to say no, only wanting to build the right thing, not just throwing engineers at things. He became a really good tandem partner to talk through these things. We essentially argue. Sometimes it actually sounds fighting, but oftentimes it's just really good discussions on "Well, why should we do that?" "Well, this is why we should do it." I'm a little bit more pragmatic, and he's a little bit more idealist.
Finding that tandem partner, I think, really, really helps. I don't think they need to be in the business, necessarily, if you're just doing a solo-preneur type venture, but they should absolutely be someone that you talk to about trying to figure out what you should be building or trying to figure out and challenge your ideas on what you're actually building and where you're going.
One of the cool things about doing this analysis, and teaching yourself the causes of all these problems, and writing it down, and making sure to do the research is that you're actually becoming an expert yourself. You actually, really begin to learn a ton about this problem that you're trying to sell people the solution for.
I'm curious how those sales conversations went for you in the early days and how you were even finding these customers after you'd come back from one of these brainstorming lulls. What did that process look like?
I'm mixing a couple things here, but thankfully, we had a mindset of the thing that we rationalize. I think human beings, we are amazing at rationalization, especially post-talk rationalization where you think, "Why'd you do that?" Well, at the time, you probably did it for another reason than the one you're rationalizing as to why it turned out the way it did.
I think for us, in hindsight, it's like, "Yeah, yeah. We knew service was going to be the thing that took our software to the next level and got us on this growth trajectory." At the time, we were like, "I don't know...", but the way we rationalized it was, "Well, we're going to get paid to do our customer development.
We're going to get paid to do our customer research, so, at the very least, we're going to go into these firms, and we're going to help them with this data and talk them through it, and then that's going to allow us to learn a ton."
I think that, although we were rationalizing, and there was a lot of truth in that because it was one of those things where each of those customers taught us a new thing, really what we learned is that pricing is traditionally a consulting-type engagement because there's so much lack of confidence that you need someone who has gray hair and has done this for 30 years in order to help you.
We were like, "Okay, well I'm 25." I still grow a beard because I don't want people to know how young I am. That was actually caused by some insane insecurity where we got this really small engagement with a pretty large software company, and I was so excited, and I remember going to the first meeting after we got the data and the results, and this new CMO turns to me and she was a bigwig.
She was a CMO at a couple of very famous public companies. I got maybe four sentences out of my mouth, and it was a day that I'd clean shaven, and she just goes, "How old are you? Just interrupts me. I was like, "Well, I'm 25." She's like, "Well, how long have you been doing this?" And I was like, "Well, my company has been around for this long, but..." And then, you get insecure where you're like, "But I've been an economist and a data analyst for the last five plus years."
It's one of those things where, I don't know why I went on this tangent, but it was one of those things where, it just taught us, "Oh, this is how this person sees the world. I go hire McKinsey or Simon Kutcher and this is how I solve this problem." Well, does that particular solution work? No, because we chased that down and we found out, "Oh, they just buy this six-week engagement for $500,000 and then all of a sudden they don't do anything. They don't implement anything. It's the same PowerPoint deck that they probably sold to three other companies."
It's just one of those things where you're like, "Oh, interesting. So how do we actually solve this problem then, but also mix it in a way that it becomes palatable to the customer?" That allowed us to figure out, "Okay, well we have this service element, and as we get those additional customers, this service element is important."
Over time it became, "Well, we're still having this service element and we're giving them this really good data, but they're not implementing it. Well, we need to be on a subscription model for this product." That's when it became what's called a tech-enabled service. Eventually it's going to be like our retained products where we're building, some of these mechanical pieces that we can basically have you set up, connect it right to your Stripe account, and then it'll just automatically optimize your pricing and go from there.
Long story short, it was a good way to get this information to then have those little brainstorming sessions. And the way that we got our customers? Frankly, we just started blogging, we had a free HubSpot account, thankfully, because we are in Boston and HubSpot accounts were just running around back then.
No, we knew someone. A person on our board is actually the head of product at HubSpot. And so he was like, "Hey, use this inbound marketing things, it's good." We were like, "Oh, okay. And so we started blogging, and what really helped there is, we found this out in hindsight, pricing is one of those things, again, where no one really knows what they're doing or what it's about, but they know it's important.
So we would write a blog post that was pretty basic and all of a sudden people would be like, "Oh my God, this was so helpful because my boss asked me about this thing." That started a nice, little flywheel going where we'd have people come through content, and then they wanted a solution for this problem when they knew it was a problem. That goes back to what I was saying before, which is it's one of those pieces that you really need to know that this is a growth lever in order to want to fix it.
It's so interesting because I meet so many people who have trouble coming up with ideas, and just in one speaking term that you're talking, it gives me tons of ideas because you're mentioning these different problems. I think at one point you mentioned, "How do you get ads working?"
Well, I hear people constantly complain, "Hey I'm trying to run Facebook ads, but it seems they work worse and worse over time. How do I fix that?" That's an opportunity for someone to do what you did. Really dive into the problem, talk to people, figure out what they're trying, why it's working, why it's not working, learn a lot, start blogging about it, etc.
Blogging – a lot of people don't get their content marketing and blogging to work the way that you guys were able to get it to work early on and find your first customers. Why is that? Well, you can talk to lots of different people who are working in content marketing, and who are blogging at their companies, and see what's working for them and what they're trying and you can just learn a lot about any of this no matter what level you're at and end up becoming an expert and teach other people what you know and then get your first sales through doing what you did.
I talked to Jason Cohen, he's the founder of WPEngine. He said something very interesting, which is that for any advice you hear someone give, there's someone equally as smart, equally as experienced who will probably give you the exact opposite advice somewhere. I've heard so many people say, the worst thing you can do as a founder is start selling to big companies right off the bat because then you're going to be locked in and you're not going to be able to escape and you're going to be a slave to whatever these companies want, and that's going to shape your product, etc.
You guys did the exact opposite. That worked out really well for you. You learned so much in these conversations. You got your flywheel spinning, you figured out where you wanted to go. I know someone might give the opposite advice, but why would you suggest founders to go the same path that you did?
First, I think that, and this may be speaking to Jason's point. I think what you just said about big companies is insane. You're never a slave to any customer. You can fire customers. And it sucks, but I think that it's one of those things that you absolutely can do. If I maybe go on another tangent, which I've done a couple of times here, I think the big thing you have to be doing is pursuing truth.
Truth is the number one thing that guides us. We're starting to make it part of our marketing because we talk about it so much internally. If you think about your business, it doesn't matter what your business is. If you're trying to solve a particular problem, and you start getting down a path, and you discover that that problem, the highest leverage you have for that problem is selling to a big company.
You absolutely should do it, or you should figure out another product or another problem. I think that we get too caught up in trying to bend the world to our truth rather than discovering the actual truth that is out there. I love MicroConf, I love this crowd. I want to be a part of it.
I feel an imposter sometimes because it's one of those things where there's so much cool stuff going on, but it's one of those things where I meet so many people who are like, "Hey, I'm going to build this for this community." And you're like, “Why?" And they're like, "Well, I just think that" -- it's not as blunt as this, but it's like, "I just think that they should have it."
It's like, "Why don't you go build to this person where I know I have some data, or I know I have some information that'll help you?" "Oh no, I don't want to support those types of people because they're big companies and they have big company problems." And it's like, "Okay, well, it doesn't sound like you're pursuing truth."
For us, the truth came down to small companies, no matter how many times we tell them, "You should think about your pricing.” You shouldn't do all the things that a big company would do, but small companies, they have too much stuff going on to think about the pricing and it's not just like, "Hey, they're focusing too much on acquisition and they're not thinking about their pricing enough," but they have to figure out payroll.
They're getting yelled at because they gotta go pick up their kid. There's just so much going on in the early stage that no matter what we tell you, no matter how much we talk about pricing until we're blue in the face, you're not going to focus on it as much as you should. And we were just like, "Okay, well, who starts to focus on it?"
Well, we started to notice that unless a board member or an advisor or someone basically says, "Hey, you need to focus on this." Or, unless there's a huge problem and it's very clear the pricing is screwed up, normally, right around ten million dollars, that level, a year, that's when companies start to care about this because they have enough bandwidth, they have enough people power to consider this as a particular growth lever.
As you increase, the complexity changes, and trust me, we have definitely worked with some companies that we probably shouldn't have worked with that were very, very large that weren't good for our product. It was one of those things where that's where we pick the market.
It's a little ironic that we have this free product because it's $0, but really, we tend to try to target people who are a bit bigger, this mid-market or enterprise, to sell our actual paid products to because those are the ones that we know have the pain. Long story short, I think you have to pursue that truth because that truth is going to be a little bit different depending on the problem.
If you bend the world to your truth, you're probably not doing it properly. You have to be more intellectually honest with what's going on in your life or what's going on with your customer base that you're trying to seek or the product you're trying to build because ultimately, you can't control what people want. You have to guide them to solving the problem that they actually have.
I think one of the stumbling blocks that people have here is that all of this data collection, all of this research, all of this learning just takes so much time. It's months and months, years and years of work.
I don't even want to know how many companies you had to talk to for you to recognize that $10 million was a special revenue threshold where above that it was easier for you to sell into these companies. How did you have the patience? How did you stick through these years of learning and updating your product and updating your sales pitch?
You say it like that, but I look back and I'm like -- again, these are really good, 90 second soundbites -- it's all episodic. That's what's beautiful about growth is, sometimes you're down, sometimes you're too far up for where you're at, but as long as that line, and this, maybe, is a line of learning or a line of information going up and to the right, and you're able to consolidate it and think through things, that’s great.
For me, I think what really got me going was having the addiction to finding the truth. That was a big thing. I started the company more so, as I mentioned before, out of hubris because I was like, "Well, if I'm going to do all this work and make someone else this money, maybe I should be my own boss and make the money."
It wasn't quite all about the money, but it had too much of that tint to things. As I got into this, I was like, "Oh, this is hard. There's easier ways to make money besides building a company." I got into this love for the momentum and this love for searching for the truth and wanting to know the truth and getting addicted to solving the puzzle.
The beauty of founding a company is that if you're trying to build a product, you're a builder. There are infinite puzzles when you're trying to solve things and there's puzzles, they don't have to be big puzzles. You don't have to have a big company to solve these puzzles. But, "Oh, how should I set up this? Let's figure out this puzzle."
"Oh, I have this problem with HR, but I don't want to hire an HR person because I want to keep the company small. Let's figure out that puzzle." For us, it was, or for me in particular, it was more about getting to the emotion of what really drove me, and then ultimately making sure that that truth that I was seeking was what drove me, and then that I had good support systems around me, which I didn't always have for pretty much my whole life until I started the company.
Having the right team, which we still have issues with, but, we're, we're building a company so that's got ups and downs, having the right partners, which I also had issues with, but figuring out those ups and downs, and then finally surrounding that with good family and a good support system.
In terms of the time for research, I think that you really have to understand that you're going to make mistakes and you should optimize for speed, but you also have to realize that at the same time you need to optimize for being smart about the resources and time that you're using, which means that some of the time that you should spend is on that research.
That's a really, really hard thing to grapple with and you're gonna make a lot of mistakes. We still make mistakes with this, but we rarely spend enough time thinking through what makes the most sense. Even when we're like, "Hey, let's plan our OKRs." Well, we don't want to plan our OKRs or things like that because, we don't want to take that much time because we want to take the time to do the thing.
It's like, what is it? "A little bit of prevention," or, "An ounce of prevention is worth a pound of cure." A little bit of prevention, a little bit of research, a little bit of understanding what's going on. Even if it's a month, when you're trying to figure stuff out that's worth going through.
Even though there's not revenue, even though there's not momentum being felt, even though it doesn't feel like something's happening, it's worth getting addicted to that truth, because then all of a sudden, you're like, "Cool, I figured something out.
I think for the next two months we should build this thing and distribute it and see what happens." Then all of a sudden, you get this nice flywheel going of the quickest path to learning. Learning as much as possible. Implementing that learning. "Okay, we have another problem. We need to learn more.
Let's go learn." "Oh, we've learned it now. Let's build it in." Getting these cycles going within your business rather than just reacting to everything.
This strikes me as a good argument for why you might want to start a service business up front because you immediately start bringing in revenue because you're able to charge customers versus oftentimes, I would get addicted to this momentum of learning and pushing forward, but it would be in the pre-revenue days of some of my older businesses, and I was really addicted to solving the problem of product development.
I would just be coding that over and over and there's lots of fun problems to solve there, but is that the same thing as driving your business forward? Not really. Whereas if you actually have revenues, you actually have customers, you have employees you need to take care of, you're biased towards solving problems that matter.
You can't really spend all your time with your head in the ditch working on your code, working on your product without talking to people because you know your revenue's not going up.
What's interesting about it is, to Jason's point, the other side of that coin is, I think that people get addicted to the money in service businesses. Not addicted to a lot of money, but it's a little quicker money.
It can be quicker learning, but it also can be quicker money, and what we found is, it wasn't hard for me because I was going after this vision and this mission of these hard parts of subscription growth.
I didn't characterize it in that particular language then, but it was, "I have this mission, I want to build something great. I want to build something big, I want to solve this problem, I want to build, build, build, build, build."
But, for some people it's really hard to look at -- I think our first calendar year we ended up closing $450,000 in revenue. It was really, really hard to look at that and go, "Okay, I'm still only gonna make $50,000 next year, because I need to hire these people and I need to find someone who's a full stack engineer, or a lead engineer, or head of product.
It's really hard to look at that revenue growing and go, "Oh, you know what? This new thing we've been building, this metrics product. Everything indicates that this should be free because all the data indicates that that's the right move.
Okay, now we have to hire an engineering team that literally isn't going to build on the thing that's making us money right now, but is going to build this free product, and that means all this profit, all this revenue, is going to go in investing back into the business." People thought we were nuts, and maybe we still are, I don't know, but it's one of those things where we're like, "Okay, well, this is the long-term vision, this is the long-term mission."
And I think that maybe it's not necessarily a pursuit of truth. Maybe it's something different from you, but you have got to stay connected to the mission, and on the other side of that, you might be fine with a service business where you're pulling down a $100K a year net and you are working 20 hours a week.
That's the four-hour work week dream. I don't think you should apologize or think you're lesser because that's your view, but I think you should be honest with yourself that that's your view. I know that I wanted to build a business that could make a dent in some part of the universe, to use the cliché that a lot of people talk about.
If I wanted to do that, there's probably better ways that I can do it. But that also meant that I was okay not making that much money because I was focused on the long term, and I probably need to be coached a little bit to not shoot myself in the foot, but I don't think that that's better or worse than someone who goes, "I just want to build a business that brings in $3,000 a month to supplement my income and pay for my mortgage."
Or, "I want to just build a services business that pulls in 200 grand a year." I think we get a little too caught up in looking at what other people's truths are, or what other people's lives are and thinking, "Oh, that's what I need," when you should just be honest with yourself, which is easier said than done.
What do you wish you had known about transitioning from a services business into more of a product business, a SaaS business?
That's a really good question. I think that we handled the transition pretty well because we've never considered ourselves a service or consulting business, and we always grimace when everyone calls us a consulting business because we are like, "No, there's software. We just don't log in."
It's actually really sophisticated. These algorithms are actually really complex, and they have been developed. I think it was one of those things where, in hindsight, I think I would have loved to know that, and this is more broad. It has nothing to do with service to software, but I'll answer that question a second.
I wish I would have known that wisdom needs to be learned. It can't be taught because there are certain things in your business. I probably said one or two things on here that everyone nods their head and is like, "Oh yeah, that makes sense for me and my business," but until you actually feel and learn it, no amount of podcasts, no amount of books or anything like that are going to help with that.
A good example of that is, you have to probably make a bad hire or four or five bad hires before you realize why you're making the bad hires. Even though that person told you that it's really important to find someone who can do X when you're hiring an engineer, maybe rationalize and think, "Oh well they can learn it on the job," or "They can figure it out," and then all of a sudden you find out, "Oh no, they really did need to know that particular thing," or "They really needed to have that particular trait or attribute."
That's a really, really big thing because I would get really down on myself because I would be like, "Aw man, that person told me that thing, and I made that mistake, and I didn't realize things are going to take longer than they are. Aw, man, I'm failing. I'm failing." When in reality, it's just part of the part of the journey.
Now, from services to a software company, I think that one of the really, really big things is the communication with your team. So, we as a bootstrap company, ended up basically saying, "Okay, well, we don't want to sacrifice this revenue right now because that's 8-10 people's jobs at the time. We want to make sure this is a separate thing, but we don't really know how it's going to merge."
I think what would have been better, and I've been talking to some folks who have been doing some services stuff and now they're coming out software is, it's probably better to just launch it under one brand, and then almost position it as, "Hey, we have this software." Even if it's very different, but assuming it's at least somewhat connected to your service business.
I know Nick Francis over at, HelpScout, they had a service agency and then all of a sudden, they built the HelpDesk. Maybe it didn't make sense to launch that under the same brand, but if we're helping the same type of customer, it probably would've helped to launch under the same brand rather than causing confusion. Then people didn't really know.
They were like, "Well, you do this pricing thing, but then you have this other product. Is that just lead gen?" It's just one of those things where getting that product marketing even directionally correct early on, I think could really help your business because you've already spent so much time getting these leads for your service side or your tech-enabled service side, and you want to use those leads naturally to also be good for your other products rather than trying to build from scratch over again.
So today you have quite a few products, and I know because I had to make a mental note to myself while I was preparing for this interview to not call you Price Intelligently over and over. It's just what naturally comes out the second I say the "P" in ProfitWell, I want to say Price Intelligently.
But you've got more than just Price Intelligently. You've got a product called Retain, which helps customers reduce their churn. You've got a product called Recognized. You just released a whole bunch of different products earlier this week. You got another product called Metrics. How different is it to launch a brand-new product versus launching a new business from scratch? What are some of the similarities, and what are some of the differences?
That's a really great question. What's really funny about it, as just a side note here, is that it's really figuring out that core, what you're driving towards. Because if you notice, and maybe you have to squint a little bit to see it, all of our products are converging on a similar theme.
We help subscription companies with these different things. There's a sub-thesis there as to why ProfitWell Metrics is free, and then we launched different features. I think that in terms of what's the differentiation of launching new products, I don't have really good advice if you're launching a brand new product, or multiple products to different customer bases because then I think you're just reinventing the same thing that you did, hopefully iterating on it but for just a different customer base.
I think for us, where we struggle is, and you alluded to this as well with the Price Intelligently, now it's ProfitWell, is, our product marketing in general. When you're launching new features or new products underneath your umbrella, I think it's a really good opportunity to start to reeducate the market.
So, what we did recently this week is, we did -- I'm embarrassed to say it this way, but it's the quickest way to explain it -- is, Apple had some event and we were like, "Why doesn't a SaaS company do that? Why don't we launch stuff like Apple does?" Obviously, it's not going to have all the press and all that fun stuff, or maybe one day it will, but why don't we do it like that? Why is it always Product Hunt and just a blog post?
It just doesn't feel like it makes enough sense. We basically did an Apple style event, it was on Zoom, but we did a bunch of work where we actually were able to retell that story. I think that's where, whether it's a feature or a product, I think that launching that particular aspect is another opportunity to educate that story.
I think Stripe does that really well because, every time it's like, "Well this is our mission to -- you don't necessarily say it all the time -- increase the GDP of the internet," but you can see that all of those different pieces are contributing towards that. And for us, I don't think we've really figured out what that tagline is or that pithy mission is quite yet.
But it's one of those things where we're like, "All right, we need to reeducate folks on what ProfitWell is. This is what we're trying to do." Because a couple of months ago, or maybe a couple of weeks at this point, I can't even remember, I tweeted out, "How would you describe ProfitWell to someone?" Everyone was like, "Oh, this pricing consultancy, this pricing consultancy, this pricing consultancy." And we're like, "Oh God, Oh no."
If you ever want to scare the life out of you, just tweet out, "How would you describe X the company?" and just get excited for "Oh, everyone who's known us for the past six, seven years thinks we're this, and then everyone who's known as the past two years thinks we're this." All right, we got to get better at product marketing. We got to get better at educating.
I think long story short, I think you have got to treat each feature as a product launch, and I think that there's some differences just in terms of the depth you go to. We have a segment integration that we haven't officially announced to our base or anything like that. We're not going to do a launch video and a bunch of other stuff for that, but we're going to think in that framework so that we can use it as to, "How do we tell the story?"
Even if it's as simple as, "Hey our biggest mission is to do X, the hard parts of subscription growth. Part of that is making it easy for you to do the hard parts of subscription growth, and part of that is making sure we integrate and use the right tools that you already do. So that's why we're so excited to announce the segment integration because now with all the other things you can do, you can automatically install the ProfitWell snippet in order to get your engagement metrics or install Retain or install some of the other products that rely on that snippet."
There, even though the bulk of that article or bulk or whatever that's going to be is going to be about the actual feature and segment integration, I'm basically retelling the story of the "Why?", which I think has really, really good externalities on your base and ultimately helping them refer people and helping them be a part of that community.
So, one of the common themes I'm hearing here is just education. That's been a big part of what you're doing since the beginning of your business, and even now, you're educating people as to how you work and how the things you're doing can help them. A lot of businesses don't have this focus on education.
How do you think you can differentiate between whether or not the business you're starting is something you're really going to have to get good at teaching people about or something you can just start executing on? Is there any sort of mark, or how does that delineate?
I think that it's how transactional the product or business is. On one end of the spectrum, if you have an e-commerce company, not all e-commerce companies, but a lot of e-commerce companies are purely transactional. If you think about a commodity transaction, like an auto part, or – I can't think of another commoditized thing.
If there was a bean company that sold beans online. That's such a commodity. It's purely transactional. There's a very minor education you need to do, and education you're probably going to do is try to convince them to buy a premium version versus that regular version. It's not going to be about, "Hey, this is why you need paper clips, and this is why paper clips are so important," and these types of things.
Now, if you go one step up the stack there, there's probably e-commerce companies, especially subscription e-commerce companies where, "Why do I need to buy my protein powder on a subscription basis?" That's a product, Musclebox. It's like, "Okay, I don't know. Someone needs to educate me." Is it because it's cheaper? Is it because it's better? What is it for?
There's box-of-the-month companies in the hot sauce space. That's a pure delight thing, so you need to educate me on why it's delightful, and you're going to be able to give me different hot sauces that are curated and are well thought out. And then, you might go up another level of abstraction and it's like, "Oh, these are software products that I need to use every day."
I need to probably educate that person on some level, either through the user onboarding, or through telling stories, or blogging or something like that. Why this product is important and why the way that we do this is important.
Even higher than that is very similar because you still need to do all those things with these products, but these products, then you need to tell them why they need it, and why it's so important that they focus on their pricing.
To be really frank with you, if I was trying to build a product that was an indie product or something where I wasn't trying to grow to a 10 million beyond business, but I was trying to basically put something together that was just for $5K a month, $10K a month and yeah, if it grew really big, cool, but I'm just trying to get to a minimum.
I think I would focus on more transactional products. Not quite paperclips, of course, but more things that already had a requirement. I need a CRM. I need something that connects X to Y. I have this problem, I have this pain, and it's easy to understand, and I don't need a lot of education, and the sales cycles are relatively small, and the retention is good.
The reason for that is because one of the biggest problems that we face is, people don't realize it's a problem, and if people don't realize a problem, they're not necessarily seeking it out. If they're not seeking it out, it's really, really hard for us to help them. We have to get in front of them, which is a much, much harder battle.
We're trying to solve this ourselves, so we're moving our retained products, we're going to start calling it a customer success solution because that's an actual space that people search for things and they already have a requirement or sub-requirements for a customer success solution. It's just one of those things where that space in that market, which is one of the original things we talked about, is so important to realize, depending on what you're trying to do as a business, and if you're more transactional, it's going to be a lot easier because people are going to seek things out.
You don't have to educate. If you're less transactional, or it's just something that doesn't really have a requirement right now, then you're probably going to have to have a little bit more of an uphill battle and therefore, the uphill battle should hopefully have some sort of outcome that is very advantageous, or else you shouldn't just go up that uphill battle.
That makes perfect sense. If you're moving into a crowded or competitive space where there's lots of players, and it's established, and customers already know what's going on, then you don't have to do as much education because there's a history there, and your competitors have educated people as well.
Whereas, if you're going into a new space and you're blazing a new trail, you're going to have to do a lot of education, and I think one of the hidden advantages to that, also, is that you might have a little bit more pricing power if there's no competitors who come before you, you can set the price where you want it, because there's not that much competitive pressure bringing down the price.
So, let's talk about pricing for a little bit. How should founders think about pricing when they're starting their companies? Also, is this important to get right up front or is it something that's more important to tweak and modify later on?
That's a great question. As Patio11 says, charge more. I think that's a big thing. But I think what's behind that is, I think you have to think about what you're trying to do and where you're going to get the most leverage. What I mean by that is, when you think about what you're trying to do in the early stage, the actual number probably doesn't matter as much as you might think.
Is it $10 versus $11? That probably is very inconsequential to your growth because that's not the biggest problem or the biggest cause of the problems you're facing. It's one of those things where we recommend in the early days, don't worry about the numbers necessarily. Figure out what level of product you are. Are you a $10 product? Are you $100 product?
Are you at $300 product? Are you $1,000 product? Really evaluate that and maybe collect some information, or talk to a few prospects, or talk to some folks on how they see your product or the problem that you're facing or the problem that you're trying to solve, or remedy what that looks like in terms of value.
Because I think what often happens in the early stage, I have at least found it easier not to start in the enterprise necessarily, but start not in the $10 a month, $50 a month range. If I'm selling a product that may cost 50 bucks a month, I might actually want to put that in the early days at 200 bucks a month or $150 per month because I want to find the people who really care enough that they're almost willing to buy it even at a higher price.
It's a price skimming concept. That's if I was a $50 or a $100 product. Now, if I'm a $1,000 product, maybe I'm going to put that price at $5,000 up front because I want to find those people who care enough and are going to be that invested. You have to be careful with this. You can't go so out of control because then you're just not going to get any traction, especially in the early days.
But don't worry too much about the price point. Worry about where you are in terms of a price level. I think the other thing, and this is the most important thing, is in the early days, the one thing that you should obsess over is what your value metric looks like. Your value metric is what you charge for. Is it per user? Per hundred visits? Per thousand widgets? Or whatever it ends up being.
The reason that this is so, so, so, so crucial is that all the data indicates that you can get everything else wrong or get everything else not to be optimized, but if you get your value metric right, not even the level of value metric you give away, but just picking the right thing to charge along, that will actually save you most of the time.
What I encourage early stage founders to do is, not to think about the price point and should they do a discount? Should they enter prices in nines or fives, should they put the most expensive plan on the left side of the page versus the right side of the page? Really spend that time thinking about how you should charge and what's going to be the best lever for ratcheting those customers up.
Because ultimately what ends up happening is that your customers expand the revenue or end up being a high price customer versus a low-price customer based on their actual value usage. Are they adding more seats? Well, they're going to start paying you more. Are they basically using more email addresses? They're going to pay you more. Are they gonna use more visits?
They're going to pay you more. And they're typically more than happy to because if you got your value metric right, they totally realize, "Well, I'm getting more videos in my account, presumably in my marketing video product. More videos in my account means I'm making more money. Yeah, totally. I'm more than happy to pay Wistia more cash."
If they start using less, they don't necessarily churn out, but they might actually contract in revenue which is absolutely better than losing that particular customer. That's where you see - I don't talking about public companies that did really well before their IPOs, but I think Slack is still a good example where the value metric really drove that business. Their free plan basically only being available up to the 10,000 messages essentially.
And then adding those additional users because as soon as those users converted, those accounts were hundred, $200 per month, they weren't just 10 bucks a month with one seat or something like that. All of a sudden, as people added users, they obviously started paying more because Slack basically became so central to their businesses.
Value metrics and then figuring out where you are in the world in terms of price level. I would recommend starting high and then coming down if you feel you need to because it's so much easier to lower prices or even experiment with lowering prices than it is to raise prices over time because you might not have the guts to do it because we all get squirrely when we want to ask people for more money.
Oh yeah. I want to talk about that because it's so counterintuitive for a lot of early stage founders who think that they can't get away with charging more when they're so small. First, I want to talk a little bit more about value metrics. What's an example of a company doing a bad job at choosing a value metric?
Oh, that's a really good question. You're going to put me on the spot to talk crap about someone. I think, I don't have a specific company and I might think of one as I'm saying this, but most of the time, per-user pricing is not the right value metric. Per-user pricing is this relic of the perpetual license days when we would basically just sell licenses to people for software.
And then we were like, "Oh, we have this cloud in the SaaS thing. Oh, let's just use the license thing." The issue there is for most companies and most products, the value isn't actually in per-user. The best test of this is if you can log in to someone else's login and get the exact same experience as if you logged in with your own login, that value metric shouldn't be per user and instead, you should probably give away unlimited users to boost your retention and then price on some other axis.
Whereas CRMs, Help desks, chats, these types of things. If I log in, I get my own leads, or my own chats and those types of things. Those are typically some bad value metrics. I haven't really thought of a good one. I think another not-so-great one is, you see this in the analytics space a lot, where companies will charge -- the analytics space is really, really hard to charge along because unless you're in the mid-market or enterprise, and that's why most of these companies end up going up market, there's not as much of a requirement.
There's not as much willingness to pay but some companies will charge, not only in analytics, but also in other businesses, charge based on how big the data set is, or how big the company is. And normally what ends up happening is if your product doesn't scale naturally in terms of value with the size of your customer, you end up running into a situation where people are like, "Why are you taxing me for being bigger, growing, or something like that?" Then you should find a new one. Sometimes it's really hard because sometimes there isn't a better value metric and you have to go in understanding that.
I can name a couple examples that align perfectly with both of those principles you just lined up. Ahrefs, which is basically SEO for Indie Hackers. I think they charge more per seat, but every month I'm like, "Well, it'd be nice if my brother could login to Ahrefs easily, but I don't really want to pay double for him to get the same exact features that I have, so I'll just give him a password to my account," and I've just never upgraded and added another seat. Ahrefs.
Another one is Amplitude, which I use for metrics and analytics. It's super free right now. I pay nothing for Amplitude, and I get a ton of value from Amplitude, and every now and then they call me and try to get me an upgrade, but the upgrade is, I don't know, 30, 40, $50,000 a year. It's a huge jump up. I can't afford that. It's not worth that much to me, and so I'm in this awkward no man's land. It's pretty interesting.
I just thought of another good one. That's a really good one, too. DocuSign is like this. I don't know if you deal with that DocuSign, but we use one DocuSign for the entire company. I think we use technically two. We use one for HR people-ops type things, and then we use one for the sales team. The sales team all just uses the same login.
It's funny because they'll occasionally contact us and they'll be like, "Oh, it appears you're over the fair use limit," and we're like, "That's normal because we have some episodic sales periods." We'll be like, "Our usage will go down," but also, I can't think of a better value metric because the market's become so commoditized.
There's so many different types of DocuSign-type products out there that if we put out some other products that charged based on the number of contracts, then we'd run into the problem where people are like, "Well, why are you taxing me for being awesome?"
I think it's one of those things where bands come into play really well. So, if you do a histogram analysis, they're really straightforward. Just google "histogram analysis" and there's great YouTube videos. If you do a histogram analysis on your usage of the value metric that you might be wanting to charge along, you'll start to see these really interesting bands of users, and that'll help you figure out, "Oh, well maybe we should have tier one be 0 to 10 DocuSigns a month.”
Because of the people in that group, they never really go over eight. If they go over eight, and if they go over 10, they definitely should upgrade to our 11 to 25 DocuSigns per month. If you do those bandings right, what ends up happening is you don't have a lot of aggravation between those precipices, but you don't have a lot of problems there because the people who truly are going over that amount, they're more than happy to because they've reached that next level of being a customer.
They've changed over from being one of those customers, but you also leave the power on your side to enforce that overage. One of my favorite things with Wistia, what they would do the first time you went over, they would go, "Hey, just so you know, you went over, we're not gonna automatically charge you an overage or anything like that, but if it happens next month, we'll bump you up to this plan, which makes sure that you have enough videos."
They would get people who would basically go to that particular email and they would just auto upgrade. They would just click a button to upgrade already. For the people who had a really good month, they were just so thankful that the company didn't auto upgrade them. It just gives you a lot more opportunities if you just understand what's going on with those bands and things that.
I think Postmark does something that. I went over my limit. I use them to send transactional emails, and they sent me some friendly nudge that I was over my limit, but it was okay. I was embarrassed. I was like, "Oh, I'm going to go upgrade to an even higher plan than I actually need."
Because I don't want them to have to send me some embarrassing reminder email like this in the feature that I'm not paying for what I'm using. I wonder how many other people also upgrade and pay more than they really need to because of that great email.
Let's talk about that other topic that I put on hold for a second, which is this concept that as a founder, thinking about how to price your startup, you shouldn't be thinking about these micro changes.
Like, "Should I charge $10 or $11?" But you should be thinking on more of an order of magnitude level. Like "Should I be charging $10, or $100, or $1,000 for my product?" And not only that, but that you should generally favor charging more, especially in the early stages, which is super counterintuitive.
Usually, if you're an early stage founder, you're thinking, "I can't charge that much because I'm just one person, maybe two people building this really simple product. All of my competitors are so established. The only way I can get a break is if I charge less than everybody else." You should probably be doing the exact opposite of that. Can you elaborate on why that is?
I feel Patrick McKenzie has the best articles on this. I think it's just one of those things. I've met many types of founders, but I think there's commonly two buckets. We've had to have these conversations when they are customers where they think that their product is worth so much more than it actually is.
Basically, what ends up happening is you have to be like, "Hey, you know this thing that you really, really value and you think is really, really valuable? Well, all data, and no matter how we slice it, no matter who we asked, no matter what we did, and we cleaned it seven different ways, it indicates the value just isn't there because, the market's like this."
The other group are the people who are like, "Hey, I don't think this is valuable enough because it only took me two weeks to build." Or, "I don't know, they're not going to want to buy it this," There's this insecurity. This latter group is about 85 to 90% of founders. I think it's one of those things especially in Europe, by the way.
In Europe, there's this weird complex of, "Oh, we're not going to be as good as the U.S. products." It's just one of those things where it's like, "No! It's software. It doesn't have a boundary or a border." Yes, there are some laws that you have to be careful of depending on where you're based, but it's just one of those things where I think that insecurity is driving everything you do.
What I would encourage those folks to do is take a step back and go, "What do you got to lose?" What are you going to lose to trying it for a month? You're already making no money, or you're already making very little money. What do you have to lose by putting that price point? I think he'd be okay if I shared this, but I had this conversation with Colin from Float.
He's a good friend from the world of SaaS. We met online and all that fun stuff. I remember saying, "What are you going to lose it doing it for a month? You have no pressure right now." They were funded and everything, but it wasn't a big deal. All the data was hedging the decision to raise the price.
And I was like, "What's the worst thing that's going to happen? You're gonna miss out on your number? Well, you're already not hitting the number you want, so that's okay.” Then they do it and all of a sudden, they're like, "Oh! Our conversion rates stayed the same, but our ARPU doubled. Great. Let's do it again, or let's do something else.”
I think it's really thinking about what you have to lose and just getting the confidence of starting small and being like, "All right, I'm just going to do it for a month. I'm going to just look at the data after the month, and I'm going to start with something small. I'm going to start with just raising the price by 50%, which feels really high, 50%, but if you're raising it from $50 to $75, it's not crazy.
If you're raising from $25 to $50, a hundred percent increases, that's not absolutely that big of an increase. Normally what you find is you get your confidence up because you're like, "Well, my conversion rate went down a little bit, but not that much, and we netted out our biggest month ever," and you're like, "Okay, well let's try something else."
I think it's just starting small and getting those reps in and just realizing that your insecurity is driving a lot of your decisions because you're doing something from nothing and that's really, really hard.
Your mind doesn't like to fail, and your mind doesn't want to do things that are going to cause you to fail. Getting over that psyche, and getting into a world where you can get those little reps. As you become bigger, you can do bigger reps because you can afford to make bigger mistakes. I think that's how I think about it.
Like I said, I think Patrick McKenzie, Patio11, has written a lot on this and it's been really good for a lot of folks to get the confidence up.
Let's talk about this 10% to 15% of founders who are weirdos who think customers are going to pay way more for what they're building than they're actually going to pay. There's a parallel here where I talked to a lot of founders who think that people will use what they're going to build when the reality and the evidence is suggesting that people aren't going to use it because it's not valuable.
I wonder if there's a parallel, if it's the same thing going on, and in your experience, why do people believe that people are going to pay more for what they're building than is true?
I think the 15% that I mentioned, I think it's probably their personalities. They think that they are God's gift to whatever their space is. They think it's really, really good. It's never black and white in that direction, but I think that's what happens a lot. I think the folks who think that someone's gonna use the product, and you're just like, "Probably not," it's suffering from a similar delusion, but that delusion is more sometimes driven by a hope.
They just put all this time into this thing, so of course they must like it. What I find with a lot of indie founders is that most, not all, but a lot of us are in the developer mindset where we think, "Engineers first," rather than someone like me who's more of a data scientist, but really more on the business side than anything.
What ends up happening is our idea is, "Let's just build stuff. We got a weird pushback that this person wasn't gonna use this because it didn't have this feature, well let's just go build that feature."
What ends up happening is they build this Frankenstein monster, which isn't pretty, and it's one of those things where no one's going to use it, but they did put a lot of time into it, so they have to have that optimism. They have to have that hope. I think it's a little bit different than the pricing aspect, but it's definitely in the same family, if you will.
One of the coolest things about your businesses that you're sitting on a ton of data. You are working with so many companies, helping them to reduce their churn, optimize their pricing. What are some of your favorite tactics? What are some of your favorite insights that you've seen from all the data and insights that you've gathered over the years that other founders might not know about?
That’s a really good question. It's a broad question. We've done a lot of fun studies. I think you alluded to it before, but we actually just launched a benchmarks product. You can go into your ProfitWell account and compare yourself not only in a snapshot, but also over time with similar companies.
I think that was the biggest thing missing from a lot of benchmarks products is it was like, "Here's a data set of 300 in this report, and all of those businesses are nothing like yours." We actually look at it like, "Hey, these companies have similar ARPU, similar churn, or in the same vertical, or different vertical. This is what they look like, this is what you look like."
I think what is cool about that is, it allows us to automate some of this understanding of what's going on in the market, what works, and what doesn't. But, to get back to your actual question, I think the value metric point that I brought up before, having a value metric, companies that are using value metric-based pricing are growing at, double the rate as those companies who are using feature-based pricing, meaning they're just pricing based on, "Hey you get these features, and it's a flat rate, so essentially it's unlimited usage or unlimited value that you get from it, and maybe to get this other feature you have to upgrade for 50 bucks a month," but those companies aren't doing as well, and it's rare you see a double phenomenon.
That's really, really rare in data. What's happening in the world of subscriptions in particular is that these aspects of growth are starting to get more dramatic, and what I mean by that is, we talked about these growth levers: acquisition, monetization, and retention. Over time, acquisition was basically the best thing you could ever do, 15-20 years ago because there wasn't as much competition.
The average number of competitors you had was close to two or three when you launched your product. Now, the average number of competitors on the first day you launch is closer to about 13 to 15. Just because software products are easier and easier to build. They're not easy to get right, but they're easy in terms of spinning up a server or spinning up a website, driving traffic, etc.
When you have these low competition moments in history, what was really fascinating is that you also had this other relationship where you're getting a brand-new marketing channel almost every single quarter, and in some cases every single month. I don't know if anyone's old enough listening to the podcast to remember.
I wasn't old enough to remember this either, but there were worlds where you had 90% email open rates, you had penny-per-click Google ads, you were the first person on Facebook advertising. These types of things, where you had these massive opportunities where these channels would explode.
I think what's happened, or it's not "I think,", the data indicates what's happened is that all of a sudden, more and more companies, less and less marketing channels that are brand new. You don't have this interesting arbitrage opportunity anymore. What was happening back in the day was, you didn't have to have a great product because there weren't a lot of great products out there because you were just building the bread and water of SaaS.
You were building the bread and water of products. What ended up happening was, you had these major growth channels. You had these products that we would look at now and be like, "Wow, that was a $1 billion company? That was a $100 million company? That was a $10 million company?" They weren't great.
They were able to grow really quickly because they were the only products actually solving that problem. To get to the point here, what's happened is the impact of acquisition has actually started to go down, and to say it's gone down is a little bit disingenuous because really, it's just gone down to not-god-like levels because we haven't added a new marketing channel or a major marketing channel in the past three, four years.
I think the last one that really was major was Snapchat, and that's not really applicable to everyone. Even then, you have a world where basically what's happened is, you can't just get unfair arbitrage opportunities out of acquisition, and this is why we're reinventing all of these channels. Account-based marketing?
It's basically email reinvented to be good email, not just spamming people. What's happened is, acquisition isn't as powerful of a lever. So these other levers, monetization and retention, they actually are giving about 48x the impact, assuming a similar optimization. If you improve your leads by about 1% right now on the acquisition side, and this is across a lot of different businesses, so it's going to be different for different verticals, you can expect about a 3% boost in your revenue.
If you improve your ARPU, your monetization by 1%, or if you improve your retention by about 1%, you're going to see about 4-8x that. Right around 15% in the world of, pricing, and close to 10% in the world of retention in terms of your bottom-line revenue. Long story short, that's a huge trend that we're seeing. That's one of the central trends that we have been riding, and it's been really guiding us in terms of the products that we build because there's more and more of a reckoning every single year because of the density that's happened in this market.
But to be a little bit more tactical on some trends, because those are always useful for some things, some of the most underutilized aspects of growing a subscription business in particular, making sure that you're optimizing for more and more people to buy annual, if not longer-term deals. Annuals have about, I think it's 30% better retention than monthly accounts.
Just because it's one time a year, you're getting people to sign up for that year versus 12 times per year. Another underutilized aspect is add-ons, so again, you're building this product and you're building this customer base who presumably likes you because they're being retained. Sell them an add-on, sell them priority support, sell them a new feature, a new product that maybe shouldn't be baked directly into the product.
Maybe it should be something separate, but that's a really, really big thing. It's a really, really under-utilized piece. A final piece, I think, is there are a number of different mechanical pieces of churn that I think you can go after. We talk a lot about delinquent and credit card failures.
They make up about 30% to 40%, depending on your type of business, of your overall churn, meaning 10 people churn out, three to four of them were because of credit card failures, and you're only recovering 3 out of 10 of those folks that that churned because of credit card failures.
That's a pretty good area of optimization from a mechanical perspective, and then the annuals I already mentioned for mechanics. Even good engagement emails. That's another mechanical piece that's super, super important for taking care of business in terms of your churn. There's at least one missive in there, I think, for everybody.
Sorry to ramble there. There's just some really cool stuff, and I get fired up about this because I love studying in the market.
I don't know if spewing out insights rapid-fire can be called rambling.
You got to put a quarter in me, man. I could just go for days on this. It's also because I'm running our content team still, and so it's one of those things where I'm right in the thick of it, doing the analysis, getting the posts out, that type of stuff. I'm not writing the post anymore, thankfully, but definitely cranking on things.
To close out, I want to reference a couple of facts that you also spoke about in your talk at MicroConf earlier this year. You said that from your surveys and from your data, remote companies have considerably less growth and attention than co-located companies.
Uh-oh. This one's going to get me in trouble with this crowd I feel.
You also said that founders who have hobbies, who score high on work-life balance tended to report slower growth than founders who had fewer hobbies and had worse work-life balance.
A lot of these, let's just say "unpopular" statistics that founders don't want this to be true. As we close out here, what's your recommendation for people listening in? What some advice, some common things they might believe that you think that they should reconsider?
I think, just to be super clarifying so I don't get run out of town here, I think- the funny thing is that we build conceptions, and this goes back to truth. We build conceptions of what the truth is, because we don't want to be wrong. We don't want to fail, we don't want to let people down. These types of things.
We rationalize, and that's amazing. That's a good human evolutionary characteristic that keeps us alive, at least mentally. I think that what's happened is, we then feed off of each other and we feed off of people who are very similar to us. There's the remote work posse, there's the Indie Hacker posse. What's funny is, we all start to get these beliefs that we can sometimes take to an extreme.
Remote work is the greatest innovation to work in the past 10 years. I've read that, I've read similar things to that. I've read part of that verbatim, actually. It's one of those things where, whenever I see something like that, I want to get some data on it because I'm like, "Well, hold on a second. It can't be that black and white. It can't be that black and white as to, 'This is great!' because there's definitely downsides to everything."
There's downsides every direction, and so, that's when I start to research things, and with the remote work aspect, it was "Oh, interesting. Everyone goes remote eventually as you grow, but to say that you're not making tradeoffs by being remote and it's just great because you can hire people from anywhere," and all the obviously positive aspects of it are just wrong because there's more nuance there.
I think that's why I wanted to get that research, and for those of you who haven't seen that research, basically what it indicates is that before $10 million in ARR and annual revenue, it's slower growth for remote companies. Now, there are positives to having that slower growth, but it doesn't mean that there isn't a tradeoff.
And on the hobby side there is definitely a tradeoff to having a hobby that takes up a considerable amount of your time. I think it was 10 hours or more per week that you are doing and trying to build a big company, so you're going to have slower growth. I think it's really, really important, and the advice I would have is, know thyself as much as you possibly can.
Because if you feel like you don't, and you feel like you're having dissonance with yourself or with others, maybe look internally a little bit and try to know thyself. As I say that, I realize I sound so soft from where I once was, but it's so true because once you start to realize who you are, and be unabashedly unapologetic about what's important to you, then you can be like, "Yeah, I know it's going to grow slower, but my mental health, my happiness, my relationships, all these things are probably going to be much better, therefore, I'm okay growing slower."
Or, "I'm not trying to build a $100 million company. I'm trying to build a $1 million company, and I'm fine if we're all remote. If we become a $10 million company or more, that's totally fine too." I think the biggest piece of advice is know thyself and then don't look at things, and this was the larger point of when I brought that data up, don't look at things like, "Oh, I'm being attacked if something disagrees with my perception of the world."
Look at it more as, "Maybe there's something I don't understand, or maybe my view is too aggressive." You can still keep your view after that exercise, that's totally fine, but if you don't understand the tradeoffs and you don't understand the other side of the argument, you can't truly believe your argument because you haven't assessed why you should believe what you believe.
Honestly, that goes for politics. It goes for building a company. It goes for work-life balance. It goes for interpersonal relationships and those types of things. There are tradeoffs in everything you do, and I think that's a really, really big thing you have to grapple with as a founder. Once you figure that out, it becomes a lot easier because then you can be honest with yourself and be like, "All right, well, we're going to come out with this free product. Well, why don't we sell it? Well, we could make money on it, but we're trying to go for this vision, and if we're gonna go for this vision, we're willing to give up that money."
Or, "Hey I'm going to dedicate my life to this, and I'm going to love going to work every day, and I don't want to apologize for working a ton of hours. Yes, I'm going to need some good people around me who are going to tell me if I'm getting a little too stressed, or, 'Hey, maybe you need to go on a break,' and I need to figure out what those triggers are for me when I know I need to go on a break, but why should I apologize for wanting to work those 60 hours in a week?" Or why should I apologize for wanting to only work 20 and dealing with the tradeoffs of, "Maybe I'm not going to be a billionaire."
This is such a good point because almost everything has a tradeoff and if you're not honest with yourself about the tradeoffs that you're making, then you're going to be making those tradeoffs without your knowledge. And that's not better. It's definitely way worse. So I appreciate you bringing that point up. Patrick, thanks so much for coming on the show. It's been my pleasure having you on.
Can you tell listeners where they can go to learn more about what you're up to at ProfitWell? Yeah, absolutely, man. Thanks for having me. Like I said, I'm more of a lurker in the Indie Hackers community. I sometimes participate, but I just love this world, and I love what you guys have done and the rest of the Indie Hackers resources because we're all in this together.
We're all trying to do stuff. Sometimes we compete with one another, but at the end of the day, we're trying to get those good outcomes for ourselves. And so thanks for everything you do. In terms of where you can find me, my email address is just [email protected] I'm more than willing to help basically anyone.
Things get crazy, schedules get hectic, but I get back to people eventually, and I try to pride myself on that. It might take me a few months, but, it's one of those things that can help. In terms of online, ProfitWell.com. We finally have a website that I'm not super proud of, but I am proud-ish of. I think that it explains everything that we do.
I publish a ton of content. We publish a ton of content. One good place to see it from me personally is just Patrick Campbell on LinkedIn. We do a lot. Or just follow us on Twitter at ProfitWell or sign up for a newsletter or something like that. It should be pretty easy to find us, but if you have any trouble, just email me at [email protected]
All right Patrick, thanks so much.
Awesome, man. Well, have a good rest of the week, and it was good chatting.
Listeners, it would really help out the show if you took a minute to reach out to Patrick on Twitter and let him know that you enjoyed hearing from him. He is at @Patticus on Twitter. That's P-A-T-T-I-C-U-S. I would really appreciate it if you reached out and showed him some love.
I also appreciate hearing from you myself on Twitter. I'm @csallen. C-S-A-L-L-E-N. If you learned something useful from the show, let me know. Or if you have any suggestions at all for guests I should bring on, topics I could cover, or ways that I can improve the show, I'm all ears. It's pretty hard to get feedback on a podcast, so I love it when you reach out and send me messages on Twitter. As always, thank you so much for listening and I will see you next time.
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