Episode 624 | Moving from Free to Paid, Prioritizing Marketing vs. Development, and More Listener Questions

In episode 624, join Rob Walling for a solo adventure as he answers some listener questions on topics ranging from customer interviews to transitioning from a free to a paid product and prioritizing marketing vs. development.

Topics we cover:

• 2:11 - What episodes should I start with to get up to speed?
• 3:27 - When to transition from a free to a paid product
• 11:37 - Customer interviews as a service
• 15:03 - Making the jump from software to manufacturing
• 19:32 - Prioritizing marketing vs. development

Links from the Show:

• Greatest Hits
• Spending Benchmarks for Private B2B SaaS Companies
• How Much Do SaaS Companies Spend on Marketing?
• MicroConf Locals
• MicroConf Youtube Channel
• MicroConf Connect

If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you.

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Transcript

Rob Walling:And so, the big question for me is, is this a vitamin or an aspirin? Is this something that people are willing to pay for, right? Product market fit, when I hear that phrase, it's a text expander in my head that says, "I built something people want and are willing to pay for." Paul Graham has famously said, "The hardest part of being in a startup is building something people want, and if you build something, people want." Boom, that's it, right? "Success follows."This is Startups For the Rest of Us. I'm your host Rob Walling. This is a show that you listen to if you're a bootstrapped, or mostly bootstrapped, startup founder, you want to grow your business faster, you're ambitious, but you don't necessarily want to grow that business at the cost of the rest of your life. You don't want to sacrifice your family, your relationships, your freedom in order to build an amazing and life-changing company.Thanks for joining me again this week. Before we dive into listener questions. We have some really good listener questions and of course, the audio and video have gone to the top of the stack.Before we dive into that, I want to mention that MicroConf is going on tour. We have MicroConf locals coming up in October. I'll be in Atlanta, in November we're in Austin, and then TBD. We're looking at Amsterdam, Chicago, Denver, and New England in early 2023. If any of these cities are of interest to you, these are our MicroConf local events where it's like three hours in an afternoon where I connect with a successful founder.For example, I just spoke with Rand Fishkin last week in Seattle, and I'll be talking with Ben Chestnut, founder of MailChimp, in Atlanta, and then Jason Cohen, founder of WP Engine, in Austin and other guests you have TBD for the future ones. But these are three-hour events where the focus is really getting a group of founders in a room and helping them connect with one another.If you're interested in any of those cities, some tickets are already on sale for the events that we have nailed down, for Atlanta and Austin, and then for future events, if you're not already on the MicroConf mailing list, head to microconf.com and get on that so that we will be in touch when these events roll out.Our first question of the day is a quick one from Dexter. He says, "I'm a new listener. What episodes should I start with to get up to speed?" It's a good question, right? Because we're 620ish episodes into this podcast plus I think there's at least another 50 unnumbered episodes in there. So realistically approaching 700. Two places I would start.Number one, go to startupsfortherestofus.com and look for the Greatest Hits link in the header. We've just updated that. We have, I think 20 or 30 shows in that Greatest Hits, and we redo that every six to 12 months and add new episodes, and remove old ones. So that's a good place to start.The other place is while you're at startupsfortherestofus.com enter your email address and you're going to get two never before released shows. One is called Eight Things You Must Know When Launching Your SaaS. The other is Ten Things You Should Know as You Scale Your SaaS. So one is for the early stages, one is you pick product market fit, you're starting to scale.Those come in audio as well as a written format that's more of a guide and those are evergreen lessons that I think every founder should know as they're building their SaaS company. So thanks for that question, Dexter, and if you are listening and looking to get up to speed, hopefully, that helped you as well.Our next question is a video question from Adam on transitioning from free to fee.

Adam:Hey Rob. Adam Dusty here out of Madison, Wisconsin area about a year and a half ago. My dad was running a bike challenge at Kimberly Park, Fortune 500 company. So a lot of employees and he was doing it on a Google sheet and it ran through a Google form where you go for a bike ride. And then at the end of the week, you count all your miles and submit it. And what it is a competition between all the different KC locations. So like Brazil, different locations in the US, et cetera.Anyways, to make a long story short, we made a website, a friend and I made a website to integrate this through Strava. So no more manual input. People just log their rides in Strava, and it gets published. The challenge challenges grown from 80 people that logged a ride. When we used the Excel sheets to our last challenge was 496 employees and friends of employees logged thrives during the May challenge.And then eventually it ended up getting too much work. We had a lot of support to do. We enjoyed doing it, but we sent a proposal for them to pay for it with some additional features and prizes we can include. They didn't take us on our offer. They said maybe for next year they could.But I'm just curious how you would've approached this, providing a service for free and then attempting to transition it into a paid service would love to hear your thoughts, really enjoy the podcast, and appreciate all the value we've gotten from them. Thank you.

Rob Walling:Hey Adam, thanks for the question. This is a fun and interesting case study, I think. So a couple of things. One, I want to go off topic real quick and say, "This is such a cool idea to build no code." I instantly thought, "Oh, I'd build this in an air table or use bubble or something." This is the perfect example of a tool that I don't think needs full-blown software to code something this simple.That's not your question, but it is something for you or for other listeners to hear that when we talk about no code serving a purpose and being able to build an MVP or to run certain types of businesses off of this feels like one that could probably be done with little to no custom code.Aside from that, though. Your question is how would I have gone about it? And frankly, probably the same way you did. I think it's great that you asked for money and you're not just providing the perpetual service for free, but it didn't work so far, right? And so, the big question for me is this a vitamin or an aspirin? Is this something that people are willing to pay for, right?Product market fit, when I hear that phrase. It's a text expander in my head that says I built something people want and are willing to pay for. Paul Graham, as famously said, "The hardest part of being in a startup is building something people want, and if you build something, people want." Boom, that's it, right? "Success follows." Which he's right. That's like the first step. And I've always... Ever since I read that essay and this is a probably 14, 15-year-old essay, I thought to myself, "It's actually, you need to build something people want, which is really hard."Then you need them to be willing to pay for it. And you need to be able to find those people at a rate or at a cost. That means that you can grow because if there's only 100 customers in the world, or you can only find one a month and they pay you $5 the economics don't work out.So there's a lot of things that have to be in place. Even in this simple broken-down bulleted version of product market fit, build something people want willing to pay for it. And are you able to reach them and close them in an economically viable fashion? And at this point you haven't proven any of those. Well, I guess you've built something people want, but we haven't proven that they're willing to pay for it. And so, without having some type of urgent need. If they just said, I will use it next year, that's not a great sign.I do see a lot of free tools built that then try to monetize and people don't want to pay for them. I actually built feedshot.com years ago. I don't even know if that homepage is still up, looks like it is. It's a static webpage. It hasn't submitted 132,000 submissions. And then it just went away. Look at that copyright 2015. This is amazing.So I built this in, I got to be 2003 and this is almost 20 years ago. This is going to sound so ridiculously dated. I'm speaking in old English, not even in modern English, but a blog is a web blog. And when you launched one year and years and years ago, there weren't crawlers. There were a bunch of directories that you could submit to. And there were at a certain point, there were 90 different directories. And so, you could submit them by hand, you could hire a VA.I just wrote a bunch of code, right? It was easy enough to hit it wasn't even rest APIs at the time. I'm pretty sure I was just scraping and actually looking at the forms and then posting to an endpoint too much technical info. TMI, I know but I had 90 of them in there and I built it and launched it for free, and people... It was getting tons of traffic people were loving it. And then I was like, "Well, cool. I want to make some money from this."And so, there wasn't enough traffic to actually make money from advertising. So I was like, "Well, I'm going to start charging for it." So I was like, "999 per submission." And like, "No one did it." So I just kept lowering the price 499, 399. And it was kind of cool. I could see the price elasticity I could see as I lowered it. I did get more submissions. And I think at the time, how did somewhere between 299 and 499 when there were still 50 of these directories?So these directories just slowly started closing because there's no reason for them all to be there. So over time they would just stop working. So I'd start peeling them out. And over time I did have to lower the price and the last price it looks like I was using was a dollar 99. And so, I would make fives of dollars on this website each month. And it's because it was not an aspirin. It was a nice to have, it was a tool. I had built something people wanted, but really nobody was willing to pay for. And so, I don't know if that's the case with what you've built Adam, but I definitely see the B to C type stuff.The fitness trackers allow people to decide on a particular schedule or manage a betting pool, just a casual office stuff. Let's figure out where we're going to lunch. These are cool, interesting, neat little viral tools. But I think of these things as almost like utilities that people consider are going to be free. And until you figure out a real... Almost has to be a business case for spending money on something like this from a business's perspective. And so, why would they write? You didn't mention your pricing, but $1,000, a $10,000, whatever that amount is. There's a lot of other places they can spend that money.And so, your question was, how would I have gone about it? Probably, the same way you did what I would do now though, is I'd be thinking my biggest concern is anyone willing to pay for this? Or should we release? If we're going to build this thing and air table, whatever, release it free, put it on product hunt and just make it kind of a community service almost to where it's a free tool. And we use it to kickstart the next thing. Or in the meantime, are we doing some cold email, maybe some type of light marketing. I don't know if you're doing pay-per-click ads or what it is.If people are searching for something like this, obviously, you could do SEO or you could go to Capterra or look at Google terms. If they're not searching for it, then what is it? I mean, it really does become more of a cold outreach thing, which is fine. But you have to ask yourself, is that what I want to be doing? And if it is then that's what you should start doing is cold outreach, fortune 5,000, fortune 10,000, whatever companies you can get and say, we have this tool. Are you interested? Oh, and I think the other way is obviously, I bet there are sites that have listings of these... I don't know that you didn't call it a Bike-a-thon, but that's what it reminds me of is the bike challenge.Are there sites that list these kinds of things anywhere, and can you get in touch and be like, "Hey, do have a tool that manages it and figure out?" I think a lot of people they're raising money for charity. I have my own presuppositions that I'm concerned that no one wants to pay for this, but that doesn't matter because I'm not the end customer.And in fact, when I get asked this question, a founder will email me and say, "I have this idea, or I built this thing. What do you think?" And I always think, "You should talk to your customers because I'm not your customer." And if I'm, I am supposed to be your customer, I'll tell you, "Hey, I would buy this or I would not." But for me to weigh in on the viability of this idea, really not having much knowledge of the market is not super helpful.And so, that's where I'd be leaning is can you go talk to customers? And if you can't find any customers now, how you going to find them once you have a full-blown product built. So I appreciate you writing in Adam. I hope that was helpful.Our next question is an audio question from Taylor about customer interviews as a service for Indie Founders.

Taylor:Hi Rob, my name's Taylor. I recently was laid off from tech company here in Canada and unfortunately, it seems to be the ongoing trend. So I had a question for you related to marketing that I think might be potentially interesting to some of your audience members. Although it does skew a little bit further away from the Indie Founder type demographic and more to the marketing side.But at my past role, I was doing a lot of interviews with SaaS founders and trying to understand their motivation for selling their business. And this got me thinking about doing my own freelance job but instead doing customer interviews as a service.So I'm just curious if you think there's demand for that from startup founders who are potentially too busy or just don't want to actually directly talk to their customers or if there's potential pivot that you could envision, that would also be good. So yeah. Let me know my name is Taylor Kartavicius and hoping to get some real good feedback from you. Thanks.

Rob Walling:Hey Taylor, it's a good question. So I like one part of this and I don't like the other. The first is customer interviews as a service. I think it's a fantastic idea. And in fact, I know some companies that do this as part of broader agency marketing packages. And I love the idea of it. I've seen pricing for of a few thousand dollars up into the mid to high four-figure range, right? 5,000, 6,000, 7,000, depending on the deliverables where there's a lot that could be done here.But I think that as a founder of myself. I would 100% hire this out. And I know that some tiny seed founders would want to know more about their customers, but you don't want to learn the nuts and bolts of it. And so, if you can pay someone three, four, five grand to do this, I think it's interesting. That's the part I like what I don't like is you say for indie founders. Indie founders, I think you mean like bootstrap founders, indie makers, indie hackers, a lot of especially early stage folks. They still think like the consumer mindset.And so, they're going to be very price sensitive. So I don't like the niching as a service for indie founders. I think you could start it there. My guess is you're going to have people wanting to pay you hundreds of dollars to do quite a bit of work. And so, maybe if you do that to get your first few contracts, to get the experience, not experience of doing the interviews, because it sounds like you already have that experience.But just to get your name out there. It's easy marketing, right? You post to indie hackers. You let people know and MicroConf connect. You have to be careful here because you don't want to seem the soliciting stuff isn't going to go over well. But if you do, you're like, "I'm a software founder. I have good experience with this. If anyone's interested, almost offering it as a low-cost service." I think it's interesting. I want to be really clear to please don't come in general to MicroConf connect and pitch new services.But I do think that this is an interesting idea. Reddit like the Reddit SaaS, Reddit startups, Reddit entrepreneurship, any of these could be interesting for trying to figure out what is that price point. If you do build a brand, then you have price flexibility, and you can expand the price as you go on. But do I think it's an interesting service? Yes, I would not make it a subscription.I mean, it really is a one-time thing every year or two we do this with MicroConf where we do a group of customer interviews jobs to be done interviews usually to learn more about the new people, the older folks, not old in age, but who have been involved in MicroConf for longer folks who only come to in-person events. Folks who only consume online just to get an idea of what people are looking for. So love the idea. Thanks for writing in Taylor.My next voicemail is from Andre on making the jump from a software to manufacturing.

Andre:Hey Rob, this is Andre listener from Brazil. My question is coming from a softer background. I want to make the jump towards founding and manufacturing company. I really believe we can bring your knowledge to the industrial sector. I know this is off, but I'm really curious what you think. Cheers.

Rob Walling:Andre, this is a tough one. I mean honestly, if someone were to come to me and say, "I've been doing software, I want to go into manufacturing." I would probably say, "Don't." And I know that's tough. That's not a great answer, but I'm not going to be able to tell you how to make the jump because I've never done it. What I do know is I have friends, acquaintances, founders, who I've advised, who have been in software for years, and we forget that we have the best business model in the world.And that's subscription recurring revenue with very low cost to serve customers and no physical inventory to manage with huge upfront cost, with refunds and shipping and stuff getting lost in the mail and pallets of things, being on a ship. There's the logistics and the warehousing and the employee count and the margins, it's just a completely different world.And so, we have this amazing luxury of being in software and having these incredible margins with accruing revenue. I could not imagine going into any other space like manufacturing or hardware, or look I ran an e-commerce company back from... I can't remember the dates. I might've messed it up 2008 to 2010 or '11 and it resold... It ranked really well in Google for beach-related stuff like beach towels.And I did several thousand dollars a month. It was a nice portfolio piece that I had combined to make a full-time income with the other things I had. And oh my gosh, per dollar earned that site was by far the biggest headache. I wasn't even doing fulfillment. It was drop shipped, but there was so much crap people wanted refunds and then they'd have to ship it back. So then I have these beach towels, they get ship back was like, "I don't really want these." I'd eat money on those stuff getting lost in the mail stuff not getting there fast enough.And people complaining that we missed a birthday, the margins were incredibly low because I had this huge cost of good sold compared to what I was used to. And there were no subscription revenue. It was just one headache after another. And I'm not saying every e-commerce business is that, but it definitely gave me a taste of the other side of where I didn't want to go anymore.And at the time I had a productized service. I ran... I was still doing a little bit of consulting. I stopped in 2008. So it was right around that time. I had several eBooks and info products. I had a SaaS I had a job board for electricians. I had all kinds of things. Oh, I wrote a book as well.I had all kinds of things that were making money and that e-commerce site. It just stuck out as such a sore thumb for me. And so, that was one of the first things that I sold as I started divesting myself and focusing before I made a big run-up that basically dove deep into SaaS. That was part of the reason was I realized info products are fine, but the one-time sales of pain. I didn't feel it just wasn't as interesting as building a software company. It wasn't going to scale in the same way.And similarly, e-commerce had at its own trouble. So that really is my advice. It's that I can't tell you how to make the jump because I haven't done it. But personally, I think you're going to... When you jump over. I think you might be taking for granted all the amazing things that we have with this business model.And I would be wary of diving in, especially thinking I have this knowledge because you probably have maybe some marketing knowledge, online marketing knowledge, and of course technology very well. And so, we can think, "Well, I'm going to come into this space, and I can out-innovate them because their software is crap and they don't know how to market." You might be able to, my question is it worth doing? Is it worth getting in there based on the margins that you're going to make from these products, would the time just be better spent in the software space, even though you're not going to be able to innovate as much because there are other people doing it?I just can't let go of the fact that we have the best business model in the world, and I would have a hard time walking away from that. So I don't know if that was helpful or not Andre, but I do appreciate the question.Our next question is another voicemail, voicemails and video questions go to the top of the stack. If you go to startupsfortherestofus.com, click ask a question, you could submit either one of those or email them to questions at startupsfortherestofus.com. This question is from Yuri on priorities from marketing versus development.

Yuri:Hello. This is Yuri. I'm building a platform for developers on the side and I'm lucky I don't need to do any development on it already because I hired developer. The question I have is that how much percentage of monthly recurring revenue or some budget or time is reasonable to spend on marketing versus development? Because it's a development tool. There is endless possibilities to do integrations so I can dedicate 100% of efforts there, but still, I understand that marketing is a very essential part of the business.So it's a dilemma, which priorities should I go after in terms of the numbers, we are around 7,000, 8,000 a mark. So we are still pretty early and that is two years in. Thank you very much for all you do. I really enjoy your podcast.

Rob Walling:I like this question, and this is one that has... Unfortunately, a lot of answers. I've seen reports there in SaaS industry reports that ask this question, right? And what's interesting to me is the range is really wide. And so, if I weren't to Google any of those and just go off top of my head. I would say in the early days of building your company and I mean like sub 20 camera or sub 50 camera, well maybe like sub 20 camera. I think 50 plus percent should be towards marketing and sales as much as you can.And I think as product people, we're going to tend to want to minimize that. But putting that effort and 50%, I mean is time plus money investment, right? And then it has to go down over time. I think as you build the brand and as you maybe compete with bigger players in this space. Now, it depends a lot on the space you're entering because if you're building an email service provider, you have to put a ton of investment into the product just to get feature parody and to have the table stakes feature.So in the early days, maybe it's weighed more towards product than I was saying. In most spaces, if you get in market, you build a brand and you have enough to get a wedge in. I do think you should be spending a lot more marketing than you think. A couple of places that we can link to in the show notes.One is SaaS capital did a blog post spending benchmarks for private B2B SaaS companies. And they say across these companies doing at least one million in ARR that the median percent of ARR spending on marketing is 9% or 10% and then spent on sales is 18%. And so, if we combine those, we say almost 30% an article from before.io called how much does SaaS companies spend on marketing? They say the average SaaS company spends between 15% and 25% of revenue on marketing. Now, this does not include sales.And then there's a quote from Tomasz Tunguz. He's quoted in bigdropinc.com's blog post. How much should your SaaS marketing budget be? Where he says during the first three years, SaaS companies often spend anywhere from 80% to 120% of their revenue on sales and marketing. So he's combining it and they spend more than revenue because of course he only deals with funded companies because he's a venture capitalist.But then it plateaus around 50% from year five on. That's really interesting. And that's at scale. I mean these are venture scale companies where you're a million and over. And so, the answer is it depends, and it depends on the space you're in. It does depend... It's like bootstrap versus funded and bootstrap versus venture funded. It depends on how beefy your product has to be. But I do think it is really easy.If you're an engineer, who's building a product and your first hire is an engineer to help you move faster. Suddenly, you can have a team of five. We have three technical people and that's just way overweight and that's way overweight, technical talent. Unless you really need to be in a feature race. Basically, and to hit a point where you hit feature parody. I just think it can be a kind of fool's errand and an easy trap to fall into overbuild.So if a founder like a bootstrap founder came to me and said, "We're at 10k MRR or 20k MRR. And we're spending 10% to 15% or 20% of our top-line revenue on marketing and sales." I would say, "You're way too low." There has to be such a push in the early days to get out there and get in front of people and close deals because not only are you keeping yourself alive with the revenue, but you are learning with every deal because you're still so early.And while I wouldn't say 80% to 120%, it's funny. I know I fund companies. I still don't think in those terms of spending more than ARR just on marketing, but it's a really interesting way to think about it of as a bootstrapper could you spend 75% of your error? What would that even look like? I thought experiments these actually where even if I never take action on it, asking yourself the question, take an hour or two and ask yourself the question. What would our business look like to 10 X in the next 12 months? What would have to happen?And then just thought experiment from there like, "We may not. I'm not even interested this may be a bad idea." But to go through those experiments, I think helps expand your thinking and can help you see things in a new way. Similarly, I think asking yourself, what would the company look like if we were to spend 70% or 80% of our ARR on marketing and sales? Does that mean we would have to raise funding, or does it mean we would just back off on feature development for now and product moves a little slower, but that's okay because we're closing a lot of deals?A lot of us build really interesting products that people want. And then we keep building and keep building and keep building. That's not always the right call. I think it's a trap. I've fallen into. And I think it's one that is easy as a developer or a product person.So thanks for the question Yuri, that was a really, really interesting one. That was our final question for the day. If we're not connected on Twitter, I'm @robwalling, and again going to be at several MicroConf locals here, and over the next six months, head to microconf.com/locals. If you want to buy a ticket for Austin or Atlanta and get on the mailing list, microconf.com.If you want to hear about future locals, that could be coming to your area. We're steadily making our way to 1000 ratings around the world in Apple podcast. It'd be amazing if you could sneak in there and click that five-star button.Thank you as always for listening this and every week, whether you've been here for six or 600 episodes. This is Rob Walling signing off from episode 624. I'll see you next time.