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Not spending money- Am I making a huge mistake?

I have an inclination to spend as little money as I can. At first this seemed like the right thing to do- validate your business before you spend money.

I have only spent money on the bare minimum- hosting, api services, etc.

But now I'm in this limbo stage where I'm not sure how validated we are, and I might need to put money into the business to grow.

My business is growing exponentially, but our profits aren't yet big enough to cover much. MRR is at $2.5k in Oct 1-21, up from $555 in all of Sep. But I make about 5-7% of that because most of that money goes to the user.

So I'm still not sure if my business is validated. Yes, there's growth. But is our market big enough to be significantly profitable?

Also I now have a competitor. We are a little different. But seeing them grow faster than us by clearly having more money and employees makes me feel the need to grow faster.

Over and over again I hear the same criticism from my friends-

--->"You need to spend money to make money".<---

But but but but but!-

  1. You can also spend money to LOSE money
  2. How do I know WHAT to spend money on?
  3. How do I know if I SHOULD spend money?
  4. How do I know HOW MUCH money to spend?

The most useful things to spend money on would be extra help or marketing.

I am the developer, marketer, content creator, customer service.... My spouse helps with small tasks. But he doesn't have the hard skills I have. So having someone help with marketing or dev would speed things up.

But how can I justify hiring someone when my company is making $150 in profits? Hiring someone with these skills costs min 60K+. Do I dip into my savings for this? It doesn't seem wise. Do I give away equity instead?

Spending a bit on marketing is more feasible. But there are so many avenues to go. Do I spend it first on customer research to understand how to market? I still feel like I could learn more from my customers. I've had trouble getting them to do customer research calls with me without offering incentives. The insight might clarify a lot for me. But this doesn't directly grow the company. Might slow things down.

Do I just take a leap and put the money into influencer marketing, give aways, targeted ads? I also have to consider if these marketing tactics would only move vanity metrics-ex follows on twitter- without getting high value users.

Or do I just keep growing slowly until the profits are more substantial to spend. Does this risk moving too slowly and letting competition push us out?

How do you know when and how/where to spend money?

  1. 4

    How did you acquire your current users that are paying you $2,500?

    Did you cold call them? -If so, hire someone to pound the phones.

    Did you find them by organically posting on niche forms? -See if you can run ads or sponsor an event/podcast in the form.

    Have you been running Facebook ads? Double or triple your ad spend.

    Don’t just spend money because you feel like you have to. However, cash is a really good tool to fuel growth. You’ve already done something 95% of IndieHackers have never done. Your SaaS is somewhat proven. Doubling down on your current acquisition strategy will surely drive growth.

    1. 1

      Thanks for your input. We've been DM'ing. But this traction channel I think is about to plateau for us and not very scalable. We've probably sent around 10k dms to get 280 users. Around 12 of these users made us money - net profits around 192.91 maybe even less with costs. (As wishlist site, most of our revenue goes to users.) The cost to pay someone for more dm's would over shadow the profit.

      I think DMing is a great way to start for free but I don't think ideal to pay someone to do. At least when your users' lifetime value is low, like in a market place app.

      So this is why I'm thinking if I'm going to put in money, where would it be most efficient? I don't think it would be efficient to use it to do more of what I was doing for free.

      But since DM'ing has sort of worked and WOM on Twitter, this makes me think, to your point, maybe putting money into social media in some way with higher ROI is the answer.

  2. 3

    I really like this post because you speak from your heart and I really believe you will end up succeeding no matter the way.

    First things first. You need to relax and don't pay too much attention to the competitors at this moment. Focus on how YOU can grow and build a solid customer base. How to do that you may ask?

    I would say that your spouse should focus on providing you with feedback from the customers you already have. Create a list with questions that will help you understand the core of your customers (needs a lot of thought to structure the questions).

    Now, when it comes to marketing I would avoid paid advertising because you need to try different things to see what works and you will end up losing money at first.

    Instead, I would say to create a blog section if you don't already have one and focus on creating content that could attract people organically. If you find a writer it will be even easier for you but he/she has to know about SEO.

    Apart from that, you can leverage email marketing. This is a great option to take both of the above tips to the next level. You can ask for reviews, do surveys, promote your blog posts or news of the business, and welcome new customers in a meaningful way.

    Resource on how to start with email marketing:https://moosend.com/blog/email-marketing/

    The methods above are quite cheap for the ROI they offer. If you want an additional tip depending on the product you can try different social media platforms which have a huge potential in 2021.

    Hope it helped you and if you need anything else do not hesitate to contact me.

    PS. You got it legend. Go for it

    1. 1

      Thanks so much Souhoho. I think you are right that there are still traction channels to try that cost less. What I like about the suggestions you gave is that these traction channels also improve your product. Users are always asking us questions. Having these answers baked into a blog can help our site be more usable. Then we can send it out in a news letter and social media. We have been doing this a bit but could do it more- and haven't added a blog yet.

      1. 2

        When you need organic traffic, a blog is an ultimate tool. It needs a lot of time to rank for the keywords you are aiming for but I think it totally pays off if you know what you're doing.

        Start by creating evergreen content and at the bottom answer FAQ to help Google rank your content higher and ultimately become a Feature Snippet. Study your competitors and try to recreate articles putting a lot more value than their content.

        Pro tip: Find a keyword that you want to rank for and search for it. Go to the bottom of the page and take a look at the search related to. These are phrases that Google says "People are searching these terms". Take advantage of them and add them to your content.

  3. 3

    This is a fun one to work with and consider what items you have the power to change to increase the amount of money you have to keep building the business.

    Questions I would ask myself:

    • How confident am I that the rate I charge is the most I can charge my customers that's fair? If I were to double it, would I have 50% less new users? Or would it be the same?
    • What additional ways can I provide value to increase my revenue? Something easily automatable or can be done in batches?
    • Is there an additional way to earn income from the other side of the market (sounds like you're a marketplace of some type or matching service)

    Keep in mind that the average profitability for a public traded company is 5-7% and that's you're cut -- so something to consider, it is quite possible you're not charging enough to make this sustainable as a business model if the frequency/volume of transactions isn't high enough.

    Do the backwards math, at your current rate, what would it take for you to earn $100K in profit so you can pay yourself $60K as a wage and then have $40K for marketing and other items? Annualize your hosting and other costs and just see how many matches/transactions you have to do at the top to get $100K in profit.

    1. 1

      You bring up some really good questions I have been considering too.

      Right now this is business that needs a huge volume. Because we make money off transactions, we can't be charging so much. So that has been a concern of mine.

      So this is why I'm focused on growth.

      "Is there an additional way to earn income from the other side of the market" interesting, I haven't thought about this. Is there an example of a market place that makes money off both sides of the market?

      1. 3

        Tons do it. EBay with EBay Plus, AirBNB charges the renter a service fee and the property owner also pays a fee. EBay has a listing fee for the seller and then commission. Other options to sponsor a post too.

        Usually you’ll see it to unlock some feature, pay this flat rate per month gets you X YZ additional features. Amazon with Prime is the elephant in the room.

        Without knowing the industry it is hard to give more examples but it is out there.

        Commercial real estate such as malls charge a flat fee for rent plus a percentage of overall revenue.

  4. 2

    Hiring is scary, and it should be! You don't need to hire in increments of exactly one permanent employee though: why don't you consider writing up a little statement of work and paying somebody for a more limited project? Jumping straight to a full-time employee is a bit like getting married after a couple of dates - it can work, but there are risks you don't have the budget for.

    Smaller scope projects limit your financial downside, give you a chance to grow as a manager, and, crucially, give you a chance to see what you can do with more more.

    1. 1

      Thanks this makes sense Moghrua

  5. 2

    You sound almost exactly like me 12 months ago when I was around 2 years into the business. I was also growing every month (not exponentially like you) but at less than $2K MRR total. I had done most everything myself and was being very, very frugal, asking the same questions about how can I hire someone if I'm making so little, is my market too small to ever support me, etc.

    Now I am going to end 2021 at around $8K MRR and I see the path to $10K MRR and beyond. It just took a long time, longer than I thought. My gut is that if you can continue to grind it out, being frugal and growing every month (even if it's not 5x month over month, though wouldn't that be nice!), you will eventually get somewhere where you yourself will also begin to believe you have something and see the path to sustainability. Good luck.

    1. 1

      Thanks for your perspective and story policenauts!

  6. 2

    My experience investing money in marketing failed. Both google ads and newsletter sponsorships.

    And I understood why. It’s because I’m still a tiny startup, not well known at all. So nobody trust it from the get go.

    For me right now, organic is way better.

    Just my 2 cts.

    1. 1

      Thanks dagobert for sharing your experience!

  7. 2

    A lot of people might say that it's not worth marketing with a low budget. For example, I've heard that some marketing agencies won't even engage with apps if their budget is less than 5k.

    But I think it's good to at least explore early on. Pretty much every ad platform has an intro offer where you can get ~$100 worth of ads for free (Google and Apple do this I think). If nothing else, it could give you space to try some new search terms and target audiences. Finding a new, valuable type of customer would be well worth it!

    The book Traction has a great framework for approaching various marketing channels. Usually only 1 or 2 really work but it can take a while to figure them out!

    1. 1

      Thanks for your input Matt. I had started reading traction and I think I should look back into it.

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