Josh Wood is living an indie hacker dream: from freelance developer to co-founder of Honeybadger, a monitoring tool for developers that generates over $1M a year in revenue. Even better, he only works 30 hours a week. Josh joined the show to talk about the reward of switching from selling his time to selling a product, how Honeybadger filled a gap left by declining incumbent players, and why building a customer-friendly low-churn business is a solid way to achieve long-term growth, even if sales and marketing aren't your strong suit.
What's up, everybody? This is Courtland from IndieHackers.com and you're listening to the Indie Hacker's podcast. On this show I talk to the founders of profitable internet businesses and I try to get a sense of what it's like to be in their shoes. How did they get to where they are today? How do they make decisions both in their companies and in their personal lives? And what exactly makes their businesses tick? The goal here, as always, is so the rest of us can learn from their examples and go on to build our own successful internet businesses. Today, I am talking to Josh Wood. Josh, welcome to the show.
Thanks, Courtland. It's great to be here.
You are one of the founders of a SaaS company called Honeybadger. There are two other founders in addition to you. You also have two full-time employees, and with the five of you in total, you're very profitable.
You're doing over $1 million in annual recurring revenue, you have low expenses and super high SaaS margins, and you bootstrapped your way to get here. The three of you own 100% of the company, is that right?
That's right. I couldn't have said it better myself.
I think you're entirely remote, too. None of you are clocking into an office, you're just working from home or wherever you want.
Yes, I'm located in the Greater Portland area up in Vancouver, Washington and then my two co-founders are up in the Seattle area, Seattle, and Kirkland, as well as our marketing manager, Ben Findley.
Cool, I’ve actually been to Vancouver.
You said you've been?
Yes, I don't know why. I think I was in Portland, we just drove up to Vancouver for some reason.
There's been a lot of tech activity in Portland over the years here and it's a great place to work and live.
I'm pretty sure I was just singing karaoke and getting drunk. I wasn't doing much tech.
Were you? It's great for that, too.
Give us a sense of your working hours, as well. Are you putting in 80 hours a week as a founder? Or is it 20 hours a week? Do you have any flexibility? Do you take vacations?
Absolutely not 80 hours a week and we try to take a lot of vacations. We’re pretty low hours on the grand scale of things. We try to put a in 20 to 30-hour week and our week target is a total week of 30 hours. That's actually what we advertise in our job postings and stuff, too. We're a 30 hour per week company.
Very cool, man. You're living the dream. I feel like most of the developers I know would love to spend their time hacking away on their own software project that's printing money on whatever schedule they want, 30 hours a week. You're also working alongside a pretty tiny team of people you actually like to work with because you got to hand pick these people.
It's great and I think we've been learning that if we hire people that are a little bit like us in that regard, that are a little bit more of having an entrepreneurial spirit to them, might have their own side project and that's why it's appealing to have a job that doesn't completely consume all of their energy. But we keep it flexible to where everyone can make their own schedule, basically.
What's the catch here? What's something that's challenging or some downside that, as an outsider looking in, I might be missing?
That's a good question. We are a small team, we are definitely not rocket-shipper, hockey-stick growth that you might have with a lot more either funding or trying to scale up a large team quickly. You have to settle into a slow and steady routine and that's what we've done over the course of the business.
This is year seven for us, so we've been here a while and we've overcome some plateaus with growth. That's a continual pattern we've noticed, we'd grow for a while and then it tapers off and you got to figure out what the problem is and get it going again. It's slow and steady, kind of boing but it's great.
It sounds great. This is the worst problem, it's slow and steady a little bit more.
I'm sure there's other problems we can go into. The nature of our business is very technical. We're a SaaS monitoring app, basically. We have a lot of high-volume data ingestion that's happening that has a pretty heavy Ops burden on the team that's so small. We have our moments, but I think overall, we are very happy with the way things are going in our lifestyle that has resulted from business.
Tell me a little bit about Honeybadger. You said it's a monitoring application. Who's using it and why are they using it?
Our customers are mostly small to medium sized teams, I would say, of software developers. We're a software developer run company. All three of us founders are developers, ourselves. It's natural that that's all we pretty much all we know. We've gone very heavily into "developers are people".
What we do is we're a web application monitoring platform, so we do a few things. The biggest one is probably exception tracking. When you plug us into your application frame or code and when an exception happens, we collect a bunch of information about what happened with your user, specifically, is our end goal, and then perform alerting and notifications and all that stuff to help the development team fix the issue as quickly as possible.
Let's talk about how you got here and find out exactly how you built this business that has very few downsides. You started Honeybadger in 2012. Often times, the real starting point for a business, though, is well before the founding date, so what would you say is the point where the story of Honeybadger really begins?
I would say it began in 2009. At least my part of the story definitely began in 2009. I was a freelance web developer. Prior to that, I had done mostly PHP and front-end development, pretty much your standard fare at the time. I had always wanted to get into Ruby on Rails, which is the framework by, at the time, 37Signals and, originally, it had been the framework that they built Basecamp on and it still is.
I really liked that and I wanted to break into it. The way I did that was I ended up meeting my current co-founder, Ben Curtis. I think he had just posted a blog post about wanting some contract help with Ruby and I was like, "Hey. I'm playing with Ruby on Rails. I really want to learn, I'm freelancing full-time, I'd love to work with you" and that's where the relationship started.
From there, we worked together. Our other co-founder, Starr, was in the same position. She was also sub-contracting with Ben and we all worked together over the next couple years. I think they ended up even going and getting day jobs together at a start-up in Seattle, but we never left the Campfire chat room and stayed in touch.
Then, that's where Honeybadger came out of that relationship of just working together on a day-to-day basis. We saw this need that we had that we wanted to solve for ourselves.
That's perfect when you can find co-founders who you've already worked together with on certain projects in the past, because then it's not this huge mystery-box-question-mark, "What's it going to be like to start a company with this person?" You already know.
It's funny because I’ve come to realize that a lot of the things we do and the way we've run the company is totally just an extension of that original relationship, which it can be a little weird now that we are bringing more people in to the mix because we are three guys in a chat room. That's pretty fun.
Give me an example of that of it being a little bit weird for an outsider coming in and seeing how you guys work together.
We've been having to come up with a little bit more process now that we're bringing in more developers and even contractors, too, into the day-to-day of what we are doing because the three of us are very independent and we're all use to picking what we feel like working on and then going and doing it.
We're very much individual, we're not pair programming – very rarely. We like to put our headphones on and be in our own offices and work on something because that's what we did as freelancers, basically. We were always remote, so it's natural for us to be at home in our office quietly working.
It sounds a lot like me. I was also freelancing in 2009 using PHP, learning Ruby on Rails, doing the same thing you were.
I think a lot of us were.
I was also working from home. I've been working from home for 10 years. I’m part of Stripe now. I still work from home every day.
All three of you were freelancers. I think freelancing is the best way to transition from having a full-time job into being a founder to your own company. It's not that different. You guys are still probably writing code everyday just like you would at a normal job, but you also don't have a boss.
Instead, you have a client. In fact, you have multiple clients instead of being behold into one company. It's just a good way to get your feet wet. It's a great steppingstone between employment and being a founder. What are some lessons you learned from freelancing and have any of those stuck around to help you run Honeybadger today?
From a remote standpoint, that's where I learned how to work remotely and how to be productive when I don't have someone like a manager sitting over me telling me what to do. I did it for so long that it feels natural now, but I think if you're just starting out, that's got to be a really tough thing and I actually remember, over the years, I had to learn a lot of things in order to get my work done at home and not sit around and watch Hulu or something.
My brother used to watch me work on my start-up from home all the time and he had a full-time sales job. I would complain about not being able to get stuff done sometimes, being behind, and he was like, "Man, if I didn't have to go into work every day and report to a boss, I would be so productive. I would be a machine.”
Then, six months later, he quit his job. I was teaching him how to code and he was just watching Netflix, chilling all the time. When you don't have that external pressure, it's –.
You got your Xbox sitting right there.
Exactly, it's just so easy to do other stuff when you realize that the reason that you're not doing that all the time is because you have a boss.
It can be hard, but it's an awesome process to go through. Especially, if you're the type of person that can self-learn and grow on your own.
You build up these independence muscles, so to speak.
Totally, and that's essential, obviously, for starting a business and where you end up becoming the boss, to some extent. We try to say we don't have bosses at Honeybadger, but decisions have to be made, sometimes.
What would you say about going the other direction? From freelancing from a consulting business to running a product business? What are some of the differences there?
That's a good question. One of the reasons that, I would say, we all three of us wanted to go the product route and transition from consulting and freelancing to product is the recurring revenue stream. Like you said, when you're freelancing, you don't have a boss. You have 50 bosses or probably a smaller number, but you have three to five bosses, which are your clients.
Also, your ability to have income is tied directly to your time. That's a really tough situation. You can do really well freelancing and it's fun. I like it, but ultimately, I think if you don't find a way to create some sort of revenue cash-flow stability and, ultimately, some sort of recurring revenue stream, you can risk burning out overtime.
At least this was my experience, it was difficult to go on vacations because as a freelancer, and I’m sure you can relate to this, you know that the minute you go on vacation, you stop making money.
There is no better impetus to switch up your business model than like, “Hey, I’m not making money if I stop working, and I want to be able to have a break”.
That was why we had the dream of having some sort of recurring revenue stream and we naively went into product, into software as a service. I’m joking there, but we’ve learned a lot of lessons from that, too, and it’s not easy to build that up, either. It’s a slow process and you got to be in it for the long haul.
We’re going to get into a lot of those lessons, but first thing’s first: How did you come up with the idea to work on Honeybadger?
We were, at the time, using a similar service. It was originally called Hoptoad. It later became Airbrake. And –.
I was going to mention that, I use to use Hoptoad.
What did you think of the name change from Hoptoad to Airbrake? Were you happy, sad, or indifferent?
I was indifferent. I kind of liked their quirky, green hop toad branding, but I didn’t really care that much.
I liked the quirky branding and maybe you can guess we named our company, Honeybadger. We like the quirky, fun style, so I was actually pretty bummed out when they had to change the name. We were big fans of the application for a long time. It was the first of its kind, at least that I had ever seen.
The ability to basically, as a developer, understand and know when your users are having problems with your code was an extremely powerful thing that I had never experienced before. Before, you just throw it out there and hope that it works.
Especially as a freelancer that gave us the ability to serve our clients a lot better because we could respond to their issues with if they encountered a bug, we would know about it before they would have to go and email us or ask what happened.
We could be proactive. We were big fans of Airbrake and I think it was around 2011-ish, thoughtbot, the agency that had originally built and run it, sold it. I think they sold it to a private equity firm. It got passed around a little bit, sold a few times, over the span of, I forget what it was, five years or something.
During that process, we noticed it was going downhill pretty fast. We were having a lot of issues with it. It started not working. It would send us error notifications that something happened, but then we would go to see it in the application UI, and it would have a loading spinner. You know, they’d tell you that something happened, but then they wouldn’t tell you what it was.
It was the most frustrating thing in the world to know that your app just blew up for a bunch of your clients’ customers, but you don’t know what it is and they’re asking you, but you can’t tell them without going and digging.
Sounds like Airbrake needed to use Airbrake.
Or maybe they should’ve used Honeybadger when it came out. That was the frustration and after a while, it got so bad and I think the last straw, interestingly, was actually not just the technical issues but it was actually their customer support, which was pretty much non-existent. That was the problem.
I think it was Ben who got really mad one day when the issue that I mentioned, he got an alert and then went to see what it was and it couldn’t tell him. I think he probably didn’t have other instrumentations set up because he was relying on Airbrake now.
He emailed their support and asked if they could tell him what happened and I forget their response, but it was basically like *shrug*, I don’t know. It was some generic response, like a canned support response type thing.
That was the final straw, where he was like, “I can’t deal”. I don’t know, we’re all really adamant about good customer support and that’s one of our core things at Honeybadger, too. At that point, we’re like, “We can’t use Airbrake at this point, so what are we going to do?” We had been talking about wanting to do products and we were looking around.
Ben had actually started some things before, I think Starr had one or two as well. I was new to it, but I really wanted to get into it and so when that happened, we were like, “Let’s just build it. Let’s just start building this for ourselves and then, maybe, it will turn into something.”
Very cool. I love this business genesis, where an existing tool that’s good goes away and now there’s a gap and no one else is stepping in to fill it but you already know that the business works because you’ve seen it work before.
The other beautiful thing about that is that you know there are customers that are in the same position as you, that are frustrated and they are wishing that something else existed, which was just blind luck for us, to be honest.
Honestly, we got pretty lucky just building it at that time because there were other people like us that were in that position. Honestly, a lot of our initial customers were ex-Airbrake users. That’s where a lot of our initial growth came from, was telling people, “Hey, there’s an alternative”.
Do you remember how you got your very first customer?
Very first? I forget who was actually first, but our first 10 customers, for instance, I would say absolutely came from our initial friends and our current professional network. We were basically emailing people, saying, “Hey, check this out. We’re building this,” and then giving them a beta invite.
That’s the really good thing about being a developer and building developer tools because then you know a whole bunch of potential customers. You know where they hang out.
You know a lot of developers.
Exactly. How long did it take you to have something that was actually worth people using and, eventually, paying money to use?
If recollection serves, we started building around May or June of 2012 and we launched in, I think it was September. September or October.
That’s pretty fast.
It was pretty fast and that was, at that point, I think we got our first paying customer and, from there, it was that slow ramp I talked about. We identified that people were looking for this and so then we started looking for ways to tell them about it.
Give me a sense of your lifestyle at that particular moment, because you weren’t making enough money, obviously, right out of the gate to support doing this full-time. Did you quit freelancing and live off your savings or were you guys freelancing on the side while running this business?
We freelanced on the side, totally. At first, it was completely nights and weekends because it wasn’t making anything and we were just building it so we could use it during our day jobs, basically. I remember at the time I was getting up really early and having some spare time in the morning to work on things when there’s no clients sending emails or bugging you about anything.
I think at the time that I was spending most of my time on Honeybadger, pre-launch, it was between 4 and 6 a.m. I’d get up and hack on it for a couple hours and then take a break, do my morning stuff, and then go get back to my desk where I’d been that morning and work on client stuff for the rest of the day.
This is where the freelancing stuff really paid dividends because not only did you build up this muscle that we were talking about earlier, where you had the discipline to really work on this on your own hours and get stuff done, but you also had the flexibility from your freelancing schedule to work around that and work nights and weekends on this project. I assume you eventually started scaling down your freelancing as Honeybadger became more and more profitable, too.
Yeah, we did. I think it took about a couple years for us to go to full-time, which I feel is really fast. I’m pretty happy about that. At the time, it felt like a slow process and it was a lot of work jumping between things.
As Honeybadger started to make revenue, we tried to make that income that replaced our existing income and then scale back on the freelancing versus trying to do more and more and more. That can be a trap. You start making some money on your product and its great, you have extra money, but maybe you just want to have extra money.
You could keep making a lot of money from consulting and then try to keep doing the nights and weekends thing on the product and try to bank that extra income. Eventually, as the thing grows, it becomes more and more stressful. It worked out really well for us to gradually cut back on our client work.
Basically, every so often, we’d say, “Okay, how much more income is Honeybadger making? Let’s cut back that much income on the freelance side.”
That’s perfect. I know a few people, that I’ve had on the show, who are able to convince their boss at their full-time job to let them cut back and go to a four-day work week or a three-day work week.
That’s a lot rarer. It’s a lot harder of a sell, but if you’re a freelancer, you don’t need anybody’s permission, you just set your own hours anyway. It’s super easy.
I’ve heard a few people mention that they’ve gone that route, too. It’s not a ton.
You guys started building this for yourselves. Was there a particular moment in time where you said, “Oh, shit. This is something that could be an actual business”, where you should charge other people to use it?
I think we always had it in the back of our minds that we were going to sell this. I think that comes naturally to us. I don’t know if it’s because we were part of the freelance thing or if that’s just the way we are, but I think we always have the thought that if we can build this up and make it into something that we could sell or that other people would want, then we want to do that.
I don’t know if there was a specific moment where we realized that. I think it was always in the back of our heads and then we gradually saw interest from other people, and we saw the response of people being excited about it when we told them about it. It got us excited and it spurred us to action to actually go out and make it a real thing.
The scary part of all this is that even though the three of you are very entrepreneurial, very self-motivated, you’d never actually started a product business before. I’m sure there are all sorts of question marks in your head. Was there anything you guys were particularly worried about, in the beginning, that you didn’t quite have figured out?
We didn’t have anything figured out, but I don’t think we were worried about it, to be honest. I guess it worked for us. I think we just dove into it. I will say that my two co-founders are great and they both had more experience than I had at the time. I’m very thankful for that experience because I think it played into a lot of our first actions.
I think the MicroComf community, it was either just getting started or it was new-ish, they were in that early bootstrapper community a little bit. We had heard some of the things to do and some of the things not to do, so I guess we knew a few things. It was all very new and at least I personally didn’t realize how much we were going to be having to learn over the next seven years of the business and continued to learn today in order to move it to the next level.
When I look at your team, the first thing that stands out is all three of you are developers, which is great because it means you can build a really solid product that’s going to work, probably. Also, do you have any experience with marketing? Do you have any experience with sales? How are you going to actually get this in people’s hands?
I know so many developers we can build something that works, but then nobody actually wants to use it. How did you guys figure out how to grow Honeybadger beyond your first 10 users, who are all friends and colleagues, to into what it is today?
Like I said, we had a small amount of experience in marketing and some of the other sales side of it. Like I said, Ben and Starr both had a few ventures that they tried, successful and unsuccessful. We had a little bit, but going back to the freelancing thing, I think that, again, played a very big role in our ability to actually sell because we could sell ourselves, we knew how to sell our own services and we knew how to get clients.
We’re all pretty successful as freelancers. Personally, I had already started that learning journey probably ten years before, where I was making no money and I was trying to freelance and learning about general business stuff, learning a little bit about sales. Sales is not my specialty, but it was a necessary thing to be able to go out and get clients and network and all that stuff that goes into serving clients.
Some of that translated into the business, being able to run a business in the early stages, at least, with Honeybadger. Freelancing is not the only route to learn those skills. These days, I hear a lot of people talking about starting with smaller products or doing info products, for instance, instead of jumping straight into a SaaS, so you can build up some of those skills that you need in order to grow a business.
You learn some sales, you learn some marketing, and the feedback cycle is a lot smaller, so you can get feedback a lot quicker and refine what you’re learning.
Let’s say I’m listening into this and I’m a developer working a full-time job at a company and I’m convinced on the freelancer route. What’s a tip you might have for me to get started as a freelancer that would help me out as somebody who knows nothing about how to find clients and run a business of my own?
Disclaimer: Pretty much, I never had a job. I can’t speak from the experience of having a job and then jumping into freelancing because web development was a hobby when I was a teenager. I just gradually started learning how to get small clients and then get slightly better clients.
One of the most valuable tips, I would say, it’s not directly related to transitioning from full-time to freelancing but curating the type of clients that you’re working with. I’ve heard a lot of people talk about you should trim 20% of your worst clients, or something like that, every year. I started doing that and it’s like the whole “fire the client” idea but that’s a real thing.
You’re not the only person that should get fired, sometimes. If you want to actually build up a consulting or a freelancing career, you’re not going to have the best clients in the beginning. Take it from me, you’ll have pretty bad clients. At least I did. I had to learn a lot about how to get the clients that I actually wanted.
Through that process, it’s easy to get stuck in a rut of you get some clients and you just work for them. As long as they’ll have you, that doesn’t give you the opportunity to grow or expand the quality of the client that you can work for. I think paying attention to that and actually having some targets of who you want to be working for or helping in the future is a good goal to have.
I love that advice. I also fired quite a few bad clients when I was freelancing. You get a lot of bad clients. It’s really easy to get bad clients, but I ended up, in the end, working, primarily, with high gross start-ups that were very well funded that weren’t worried about their budgets and that were working on pretty cool stuff and that was what really worked for me.
That’s a great audience to serve as a consultant.
Let’s talk about the earliest days of Honeybadger, post- you guys going full-time on this. Was there a certain point in time where you all three decided, “Okay, this is real. Let’s all go full-time” or did you transition out of your freelance jobs at different times?
It was around the same time. It was at the same time not necessarily because we were all in the same place but because we all waited for each other to get to the point where it was all comfortable for us. We were not all in the same places in our lives, at the time. I will say, especially for Starr and myself and even going back to the whole working nights and weekends thing, even as a freelancer, we did not have kids.
I just want to qualify that it would have been much harder with kids and I know it’s possible, but it would have been more challenging. As we went through that bootstrapping, cutting down on the freelance work as the income from the business came in, we all had targets, that we had discussed, of what is a reasonable full-time salary for us that can replace our current income.
Ben has a couple kids and they’re a lot older and he’s got a family. He can’t just take a huge pay cut. Basically, we didn’t want to take much of a pay cut from what we were currently making. We did the gradual process and it took us, like I said, a couple years to, ultimately, get there. When we did finally say, “Okay, we’re going to start cutting the clients and just go full-time on this,” it was around the same time for all of us.
Were there any early decisions you guys made that if you could go back, you would do it differently? There’s so many decisions that you have to make to get a business out the door. There’s the name, which, obviously, you love and I love, as well. There is your pricing and your business model or the types of customers you’re selling to. There’s your marketing copy and the way you describe yourselves. How much of that has changed?
The way we describe ourselves, we’ve refined it over the years. I don’t know if it’s changed dramatically. Maybe it has if I go back and look at our initial sales page or something. I’m sure it’s pretty different.
I think we haven’t changed a whole lot in the spirit of what we are or what we do. I think if I could go back, maybe one thing that I would have liked to have had would be a greater variety of outside input on what I was doing at the time, if that makes sense.
All being developers, we’re all very similar in the way we think and our approach to things. I think over the years, I’ve started to learn the value of having more diverse opinions and other ways of thinking in input into the business or into what I’m doing.
That’s a newer realization, but that’s something I’m looking more into these days. Just from a standpoint of personal growth and growing the business into new territory that I don’t understand or is out of my realm of expertise, I think it’s having people that don’t think like I do is a good thing.
Give me an example of something that the three of you guys might all be very similar minded on as developers, but an outsider, for example, I think one of your employees now is a marketer. What do they bring to the table that you guys will consider?
Ben Findley is our marketing manager and, ironically, he’s one of the most analytically minded of all of us, I mean focused on numbers and analytics and actual results of advertising, that sort of stuff. We like marketing and it is something we’re really invested in learning.
All three of us are pretty marketing focused. Basically, the whole team is pretty marketing focused. Bringing Ben on, he definitely thinks more like a marketer and less like a developer because he’s not a developer. He’s definitely brought a lot to the company that we didn’t have and if we were talking about a problem, he’ll approach it from a totally different angle.
That’s been great. The analytics thing, when we do marketing, I think we’re still all about the building and the doing of it and the shipping aspect of it. Then, a lot of the times, the trap we would fall into is we would just forget to measure the results or forget to have any discernible prediction of, “Was this successful or not beyond our feeling?” and “Did it make us happy? Did we have people that liked it? Could we see some results from it?”
You’re almost treating marketing like a product feature, like something that you build and you get it out the door rather than as an experiment that you run and really test to see what happened.
Experiments, funny you mention that, I’ve been trying to develop much more of an experimenting mindset lately and I’d say over the last five years, even. The idea of not only forcing yourself to ship things, but then understanding that it’s okay if it’s not a huge success or it’s not something you even keep.
As long as you’re trying specific things, I think that’s a big take away for me as I’ve learned to marketing, is that a lot of it is actually experimenting to see what works and then having a way to measure the results and using that information to keep doing what works and then continue trying to find other things that work.
I’ve tried a lot of things that don’t work over the years and I’ve thrown away a lot of code and a lot of marketing approaches. Josh Wood: [00:37:57] The act of trying, itself, that’s the discipline, right? If you don’t develop that, you basically don’t do anything, or you just keep doing the same thing that may not be working and you don’t grow like you want to.
You were mentioning earlier that part of running a SaaS business is that you grow and then you tapper off. You got to figure out what’s wrong, what’s the new channel that’s going to work for you and then you start growing again.
Then, you repeat. What are some of these growth spurts that you had and what have been the primary mechanisms for Honeybadger growing during those spurts?
So far, I think most of it has been pricing issues. Early on, our first plateau was related to our pricing not being quite right and I think it was lower than it could have been. We ended up experimenting with our pricing, our plans and our tiers and that sort of thing.
I remember going through a few iterations of different pricing and we continue today, even, to play with it some. That’s something that I don’t see it ever going away, but, especially in the beginning, that was when we had no idea how to price a product or what the market would bear. That was one of the first ones.
I just talked to Patrick Campbell, CEO of ProfitWell, and his entire business is around helping companies figure out their pricing and reduce churn, etc.
He’s somewhat of an expert.
Yes, he’s an expert on this. He was saying that there are really three levers to how a company can grow revenues. Part of it is user acquisition and that’s the one everyone focuses on, “How do I get new customers in the door?”
But the other two are monetization, your pricing and figuring out what you’re charging for, how you’re charging, how much you’re charging, etc., and then also reducing churn. You’re talking about pricing being a lever of growth for you. How did changing your pricing enable you guys to grow revenue?
Initially, we just started charging more, we raised prices in general. We’re making more money off of the users that are coming in the door, so that’s growing revenue at a greater rate than it was. We experimented with different methods of tiering. In the beginning we had the idea that we didn’t want to limit people in some specifics ways that we had been limited with other products.
We just didn’t like it and we were like, “If it’s our business, we’re just not going to do it.” We still have a little bit of that mentality, but those levers are really important in your pricing. Things like, “Are you going to tier on features? Are you going to tier on data or usage limits?”
You have to have some kind of lever because if you just depend on your customers to throw money at you just because they like you, maybe a few will, but that is not the norm. We had to take a little bit of a harder line at times than we probably wanted to, initially, in order to extract amount of value that you need from the product for what it’s worth.
Recently, one of our last plateaus that we’ve broken out of, growth has resumed pretty well, was related to volume limits, our usage limits. One of the things, early on, we were adamant about was we’re not going to have any volume limits, no rate-limiting anything. That worked great when we had a couple hundred customers, but when you get into the thousands, and some of those customers are eBay or something, like large applications that are performing denial-of-service attacks on your servers, you need to have some sort of limit.
We’ve experimented a lot with that. We landed on a pretty good compromise we felt that it was still very generous to our users, but it was also fair to us and the business. Then, we didn’t enforce the limits. We published the limits, but then we didn’t build the back end to cut people off because we like to be nice.
We don’t want to cut people off because we know what it feels like. We learned from that, if they go over the limit, there’s no repercussion. It’s like you don’t have a limit. We went back and we built some, what I think is fairly generous still, we allow people to exceed the limit to a certain amount and send them a lot of notifications and all that sort of thing, but eventually, they do get cut off. Just that act alone, that was enough to push the ramp back up.
That makes so much sense. I think the thing that Patrick was telling me about on the show that was really new to me, I hadn’t really thought of it that much, was choosing the right, what he called, “value metric”, and so you want to choose for something that as companies grow, they grow into that plan and when you charge them more money, they’re actually getting more value from it.
For example, if you’re charging per user but they don’t get more value from having more users who can sign into Honeybadger, then they are going to be grumpy about that, versus if you’re charging for what you guys do, which is the number of errors per month that they can run into or the amount of retention for the reports that you guys generate.
That’s pretty cool. If I’m paying more money, at least I’m getting a lot more value that can report more errors. I can see my errors for longer, so it makes sense.
I think the main things that’s been the main growth strategy for us so far. We’re terrible at the user acquisition side of it, to be honest. That’s one area where we’re really trying to learn more. That’s the side of marketing that, as developers, hasn’t come naturally to us.
I will say that all of our user acquisition growth, for the most part, we’ve done a lot of marketing and advertising stuff, but it is all centered around word of mouth and actually interacting in our community, being a member of our community, that all plays into word of mouth, so a lot of our marketing is centered around that. Our customers are amazing, and they are our number one priority.
Everything we do pretty much centers around our customers and shipping things for them, listening to their feedback, even just giving them cool experiences at conferences or whatever we can to make their lives better.
That’s paid off at least on the growth from user acquisition. We haven’t really had to figure that out, yet. We probably will, but we’ve been able to grow still without being amazing marketing gurus, or something.
You mentioned earlier that you have really slow, steady, linear growth and I think that being an exception handling service, a monitoring service, that automatically means you’re probably going to have pretty good retention. Assuming you’re not Airbrake with terrible customer support and an unreliable product.
People generally, once they sign up for monitoring and if they like it, they’re probably not going to churn next week, whereas if you’re building something like a to-do application, that’s pretty easy for people to churn from because they have to remember they have to add new tasks and if they don’t, then they automatically churn by default.
That’s a pretty cool way to keep your growth going and it seems like you’ve really double down on that by focusing so much on customer support and making sure your product is really good and that people using it feel taken care of because now they’re doubly less likely to churn and quit.
Totally. That has really paid off for us. Our churn has been around 1 or sub-1%.
It worked really well for us and, like you said, we have a good type of application and what we do fits well for that. Our efforts have really paid off.
If you’re churning 1% or fewer than 1% of your paying customers every month, you can basically have no customer acquisition.
That’s where we can afford to be terrible at customer acquisition because no one leaves.
Exactly, you don’t have to be good at it. No one leaves. I think it is something that a lot of people overlook when they’re starting businesses, like, “How do I get people in the door?” but it’s like, “well, 80% of your customers are leaving after a month, so do you really want to spend more time getting people in the door if that’s what your churn looks like?”
I think you’re right. I think, for me, that can feel daunting when you see how few sign-ups you actually get for where you supposedly should be, but it doesn’t matter. You’re still a ways to grow and you can always go and learn how to also do customer acquisition better.
One of the things you guys have done that’s sort of a customer acquisition play, if you will, is you have a podcast, now. It’s called FounderQuest. I’m kind of on a roll here.
I feel like the last 10 people I’ve talked to are either in the podcasting space with the business that serves podcasters, or they have a podcast and you’re no exception. Tell me about FounderQuest. What is it and why did you guys start a podcast?
FounderQuest, you can listen or subscribe at founderquestpodcast.com, but it’s basically the three of us, the three founders of Honeybadger just chatting every week about the business and we go deep on topics that we are discussing right now.
A lot of it has been a similar vein to discussions we’ve been having, like what’s worked, what hasn’t. It’s all been marketing and business and bootstrapping focus. Some of it is technical, it’s targeted at developers who are interested in bootstrapping or starting their own companies.
It’s been a lot of fun and its mainly that we really like podcasting. Like I said, we’re all pretty independent. We chat but we’re not always talking face-to-face and we’re remote, so we don’t always see each other. It’s a really nice way to get together every week and actually just chat, so I look forward to talking to my co-founders and it’s a lot of fun.
I love your art for your podcast at founderquestpodcast.com. Are you the barbarian with the red beard and the axe on the left?
You’re looking fierce.
Thanks. We were going for a Dungeons and Dragons kind of theme with the whole quest and the artwork and all that. That’s actually Starr’s doing. She’s a big D&D fan.
It looks great. There’s this video game I used to play as a kid on the Sega Genesis called Golden Axe and there’s a dwarf character with an axe. Your character on this website reminds me of my favorite character from that game.
Awesome. The artist who does the artwork on that also does the artwork on our stickers and t-shirts and stuff, which is one of the other marketing things that we’re really big on. We like doing badass t-shirt artwork and that sort of stuff and then giving a lot of them away for free.
You’ve got a podcast, you’re going to conferences, you’re giving away stickers and shirts and stuff like that. Which of these user acquisition techniques, would you say, has worked the best? If you had to keep one and give up the others, what would you keep?
That’s a good question. The podcast is fairly new, so I can’t say if it’s made a huge difference in user acquisition. We’re looking at it as, like I said, like an experiment. We always wanted to do one, we just procrastinated on it, to be honest, and just never did it, so we were like, “Let’s actually do this”.
This starting out developers and bootstrappers, those are our people, so we like being able to share with them. We’ve gotten a lot of value out of conferences and being part of the community.
We’re torn on conferences because they’re very hard to measure. Like I said, we never had a way to measure how effective they actually were in getting new users, but since all of our growth has been word of mouth, actually going and meeting people and having them know we exist and we’re real people and we’re developers like them and making those connections has been a big win for us, I would say.
I think any place where we can actually communicate and meet our customers and prospective customers has been a good thing to do.
You said earlier that you were naïve enough to start a product business for your first business and that you’ve learned some lessons about it, that it’s not easy and that it’s a slow process.
What would you say is the biggest lesson that you’ve learned from running this product business that you would hope first time founders and people just considering this would also know?
I think that the slow growth trajectory of a software as a service business, I didn’t really know what the growth trajectory was when we started. I didn’t know much about SaaS or other products, for that matter. There’s a lot more awareness, now, of what you can expect when starting different types of businesses or if you go the info product route, or that sort of thing.
You get a lot more feedback a lot more quickly. You can make changes a lot more quickly. With SaaS, when you’re starting out, usually it’s six months, at least, before you actually have something that’s even somewhat complete. As you’re building it, it’s easy to build it and not talk to anyone. Especially as a developer.
There’s so many more resources for bootstrappers and especially as bootstrap developers today that didn’t exist back seven, eight years ago when we were getting into this or at least I didn’t know about a lot of this stuff.
Learning ways to actually validate your market and build what people want and that sort of thing, start getting early feedback as much as possible, all that stuff is good to know, especially if you’re going to go into SaaS because it’s easy to fall into build it and then you don’t build the right thing.
I think that’s so important to go into with your eyes open and know how long the cycles can be, for starting a SaaS business, to get things started. Whether you start off as a freelancer or you start by building an info product or you start by building a really small SaaS product, just having some sort of small bite that you can take to make the transition easier is really important.
Having a good foundation to build from, too. Like I said, we had the freelancing, which made it a lot less risky for us to start building a SaaS that was going to take five years or whatever to become real money.
There’s other ways to build on a foundation and you might mix and match a lot of these different things that people do to support themselves until the software as a service can grow to the point where it’s paying the bills.
Listen, Josh. It’s been great having you on here. You guys are killing it with Honeybadger with your slow, steady, low churn growth. You guys have gotten acquisition offers to sell. You’ve turn them down, obviously, because you’re still here working on it. What’s the future look like for Honeybadger? What do you think it will be in another year or two?
Hopefully, not too much is different. Maybe a few more people. We’re not planning to hire rapidly, but we’d like to add to the team a little bit and keep working on making the business more sustainable for everyone. That’s one of our big things is that we want to enjoy this while we’re working on it.
We have sacrificed some growth in exchange for a healthier, happier lifestyle, but it’s been totally worth it, in my opinion. We want to keep growing the business and keep learning about this whole style of working and style of building. There’s a lot that I, personally, know I’m going to learn and hope to learn. Keep at it, basically.
Listen, Josh. Thanks so much for coming on the show and sharing your story with us and helping other people who are trying to accomplish what you’ve done and learn a little bit more about what that path looks like. Can you tell listeners where they can go to find out more about what you’re up to at Honeybadger and, also, where they can find your FounderQuest podcast?
Totally. You can find us at honeybadger.io. That’s our main website, founderquestpodcast.com is the podcast, you can find us on Overcast or iTunes or wherever else, Spotify. Just search for ‘FounderQuest’.
We recently launched with the GitHub Student Developer Pack, it’s a thing GitHub put together, which takes a bunch of partners that serve developers and we all give away special things for students. If you go to education.github.com/pack, if you’re a student developer or if you’re just getting started, you can get the whole pack and then you get a whole bunch of offers for free.
I think we are giving away a free small Honeybadger account for a year to new students. If you want to connect with me personally, it’s joshuawood.net.
All right, thanks so much, Josh.
Listeners, if you enjoyed the episode, I would love it if you reached out to Josh and let him know. His website is joshuawood.net and all his contact details is listed there. I believe his email is just [email protected] but my favorite thing is when guest who have been on the show tell me that they’ve received all sorts of nice letters and emails and tweets from all of you.
Again, if you enjoyed hearing from Josh, just reach out and email him and tell him thanks. Also, I am available on IndieHackers.com at any point in time if you’re trying to start a company or if you have any questions, feel free to make a post there and just tag me @csallen and I will get back to you. As always, thank you so much for listening and I will see you next time.
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