Leveling Up – Patrick McKenzie (Patio11) – MicroConf 2015

0:00[Music] hidey-ho everybody my name is Patrick Mackenzie better known as petit eleven on the Internet's and why do I come out all the way from Tokyo over to Micro cough every year so I started my software business back in 2006 because I was following a life script that was laid out for me by somebody else that I did not pick and that I did not like I was always skeptical when I was growing up that that could actually happen you know raging against the system always sounded me as crazy like why don't you just not follow the system murder was the case that they gave me I never

0:37really connected to that then I realized one day that salaryman was the case they gave me salary man is a Japanese word for a full-time employee of a mega Corp being a salary man is a lot like murder it just takes longer and is marginally more scalable and so started this bootstrapping journey a few years ago some of you know the story I'll be recapping a little bit of it over the course of the presentation but it kind of took over my professional career it worked out very well and one of the reasons that it's worked out so well for me is I've had the privilege of learning

1:09a lot from other people who made software companies who are in the bootstrapping community from Rob from Heaton from Jason from literally dozens of you folks I think that's why we all come after micro cop because we're sort of a community of purpose and we share similar values we have similar goals in mind we have a diversity of skill sets how we're going to actually achieve those goals and we love helping each other out and that's one of the things I love most about this conference is that at a lot of conferences there's the speakers and there's the unwashed masses but there are no teachers at micro coffe

1:42there are no students that Michael Copps there are only peers people who are building their businesses making wonderful lives for themselves and their families and so you know we're outside making out here and it always weirded me out a little bit that this community choose chose Vegas for its point to come together because Vegas is like the least micro country value kind of city I can think of because Vegas was basically like planned by Satan over the course of a week and then after the week somebody from Zynga called up Satan Zynga has Satan on speed dial speed al 666 and they said yo bro while I appreciate that you're pretty

2:21good at this whole Prince of Darkness thing you could have done it so much better your viral coefficient is below 1 and do you even know what an engagement loop is get with the 21st century lead more people astray Micro Kampf does not share those values most of us we are very involved in our families and our communities both online and in our actual physical world me perhaps a little less in the physical world although I did start singing in the choir lately yay and so a quick shout out for for the spouses and children who are in the audience I know quite a few make it out every year and for those of

2:56us who those who are supporting us at home yay I've got a little bit of that honestly think that is probably the most important thing I will say that if your business is enabling you to live the life with your family that you want to live then that is great and if it's not no other success in the business will excuse that speaking which and this is liliom my daughter ivory canal welcome to her six months ago she'll be speaking next year it will probably be googoo gah-gah so switching gears for a little moment I'm going to talk about something from developmental economics it's called the flying geese

3:39curve it was postulated by a Japanese economist in the 1930s explaining and he was pretty brilliant she basically laid out what had happened in the last 20 years and what was going to happen to over the course of the next 80 years both the Japanese economy and the other developing economies in Asia it's called flying geese curves because if you draw this he was kind of vague on the axis so I'm being kind of vague on the axis too but if you draw this curve of where a particular industry can take you you every come every country the country starts out basically having nothing dirt-poor and how do you become a you

4:17know wealthy developed nation if you're dirt-poor he says you start somewhere where anybody could do it which is the textile industry well traffic here because every country in the world has someone who's been making clothes because they're not walking around naked today and the technology that you need to go from having a low scale textile industry to a scaleable textile industry was like proven to work by England in the 1700s so all you have to do is do exactly what the English did and he will eventually claw your way out of grinding poverty down here to having a textile industry which is kind of working first it will

4:52produce thread then it will produce fabric and then at some point you will be producing actual clothes and you'll be able to take that advantage that you've created textiles only gets you so far you take that advantage you've created in textiles infrastructure you've built up to make textiles the educated population the fact that the lights actually run everyday and you start on a better industry something that has a higher ceiling to it that you would emphatically approach typically that's something like steel or mineral mineral production you do a steel for a while you get better at making steel you get better at improving your companies that

5:23your country's infrastructure you take the money that you made from steel and you invest it into industries which are harder to get into on the ground floor like making automobiles and your first automobiles are going to absolutely suck but that's okay you'll get better at making automobiles over time so I don't want to over here ever seen a picture of a Japanese car from the 1950s they were undriveable death traps by 1972 and hundun company had come along and Japanese cars were actually kind of good and they sort of ran away with the world and then you don't just stop there you take what you've learned on making

6:00cars and you make high-end products robots Japan is the number one producer of them in the world precision machining machining and engineering tools automobiles pharmaceutical cid odda and over the course of a very short amount of time this economist in the 1930s before any of it had happened said if you follow the Flying V curves the flying piece curves you go from being grinding in poverty to being on top of the world he also said one of their interesting thing you said that when you're on stage two over here you'll have friends in the neighborhood in Japan's case it was Asia and they may or may not be friends

6:34that's a long story and another talk entirely but you've got other countries in Asia who are nipping at your heels and you're doing technology transfer with them saying hey we're kind of done with this whole textile thing and Japanese people are too expensive to make clothes anymore but we'd be happy to have you make our clothes we're gonna be concentrating on the steel for now and similarly when they go up to cars it's like Japanese people are really too expensive to buy a steel from we'll buy our steel from China China's doing the steel thing these days but China Chinese people are too expensive to button to

7:04make clothes enough no problem look at that from Thailand and then there's a bunch of dirt for countries around Thailand to a mysterio anything yet but that's a dots and the entire economy of these interconnected companies countries gets better and better over time I wanted to introduce my economic theory of Dylan which I call the flying geeks curve you start out with absolutely nothing so in 2006 nobody who knew who I was I was barely capable of programming my first website was literally hand coded in notepad and then hosted on a $4 a month GU GoDaddy hosting and it was targeting bingo card crater which has

7:40many many things about it we should not make it a wonderful business oh let me tell you an entire presentation on that fact alone but I got pretty good at some stuff with bingo card creators that gradually approached an asymptote of how good you can possibly make a business selling bingo cards to elementary schoolteachers goth coated SEO got go to AdWords and I started doing that for other companies in a consulting basis that made a little bit of money it got my name out there and the internet was blogging during all this time and I turned around and invested that into a SAS company appointment reminder which

8:11does appoint reminding phone calls for professional services businesses and that did hmm we'll talk a little bit more about it how did I'm giving my stats in this presentation for the first time but recently I stopped well not stopped appointment reminder it's not quite sold yet but I'm starting a new thing called Starfighter which is only possible because I went through the whole grind here I'll tell you a little bit more about Starfighter in a minute so I think if you talk to a lot of the founders here this is something that's not obvious that when it's your first rodeo you'll find a lot of people here

8:44run portfolio businesses or they've run a succession of products almost nobody achieves the much-vaunted hockey stick curve you know within weeks of first starting a business they grind up on a business which doesn't appear to have a very high asymptote as a business doesn't appear to be very sophisticated they get better at that and then they lay our businesses on top of that for the rest of their entrepreneurial career I make no mistake it's a career I've been doing this for nine years now which kind of blows my mind nine years from now you may still be doing this and you will be radically better in it than you

9:14are today but you can kind of like shorten it I like listening to the presenters up here will tell you all the mistakes we made in building our businesses which I'm going to tell you several the mistakes I made on picking which businesses and how I layered them together such that you can you know achieve your goals in a more reasonable timeframe than having to grind it out for nine years so hands up here for people who are still pre product awesome um so well talked a little bit to you for a moment I've been asking that question I think every year and the first year at Microsoft it was maybe 40

9:49or 50 percent of the people didn't have a product yet and then I see the same faces the next year and most of them actually ship something and then I saw the same faceless the next year their thing was doing well and a few years later did you guys know that one of the attendees to Microsoft's the first year like he didn't have a thing in the second year he was selling some iPhone app vacations in the AppStore and it was doing kind of decently and then like two years later he sold the company to Marissa Mayer like that is the thing that actually happened and there's lots

10:16of people who have story stories like that in the audience definitely ask them for their stories when you're meeting them later today anyhow tutorial motion your first business simple the the most important thing about your first business is that you actually start one I kind of like flopped around for ten years with this idea that oh yeah eventually someday I want to try out that entrepreneurship thing but I never like actually committed it and ship something and you're like it's so radically better after you ship something so ship something don't be paralyzed by the notion that has to be the best possible business that it has

10:47to be something that's fundable by VCS that it has to have a clear achievable hockey stick within the next three weeks that's not what you need you just need something to get you out of the market get you exposed the mechanics of running a business give you a platform to learn from and to build up skills which you will apply over the course of the rest of your career it is almost certain that you will not eventually be known as the person who created the first thing that you made optimized for learning over perfection again you know I know some people I don't think any of them are

11:19here but folks who said oh yeah I've been doing market research for the last two years market research for last two years does not achieve the goals that you set out when you wanted to become an entrepreneur you would do much better to just say okay I've got a decent idea halfway decent idea of bingo card creators even much less than asked but halfway decent idea but it worked and if you just get that out after a little while and learn from it you can have a much better idea on your second go-round start accumulating unfair advantages for your business so there are like seven billion people in the world and you

11:53don't want to be competing with all of them on day one when you don't know anything when no one knows your name when you haven't been exposed to marketing and sales online when this whole like business thing is a complete mystery to you then you'll be like exactly like I was on day one but as you skill up you're going to discover things that you're very good at learn a little bit more and you'll be able to do businesses that other people can't just can't just start on a whim that will be to your advantage and then you probably want your first business to cover your minimum viable financial goal

12:25for a bingo card crater back in the day I was earning $3,000 at the day job so if bingo card creator could cover $3,000 which is not a whole lot of money and I could quit the day job and go full-time I'm a thing and accelerate how quickly I could launch products and learn about them which actually happened how do you know something is an unfair advantage one reason is um I was talking about this earlier to someone when you're in the thick of the business it's not necessarily clear to you that you're really good at something but it's often clear to other people before it is to

12:55you you should listen to feedback on that if someone says you were conspicuously good at this marketing thing you were conspicuously good with customer support listen to that make choices based on it um I was once chatting with Joel Spolsky and this was when bingo card creator was my only thing and he said Patrick you know a lot about this SEO and AdWords that seems pretty useful have you ever considered it you using it for a business which isn't totally and and so feedback from Joel Spolsky who is a very smart guy should tell me oh wait that it like I thought it was easy because I've just

13:35been doing it for the last two years but it turns out that that isn't easier for most people I should build a business around that and I didn't but we're on that later watch other people around you in the community you have many many peers here who are super open about what's been working for them like here are their numbers here what's been like a real slog and their business here with their good at and note the points where people are saying yeah it's been this real slog doing this thing you're like really I happen to be kind of good at that I didn't even realize that was a problem I

14:03just do it automatically and then get bogged down in you know server administration and the people who are really good at serving of administration should probably get in touch with people who are really good at marketing and swap ideas like hey you're good server administration you're good at marketing we should both do that for the other and also use your growing understanding of your business to project out what you're this thing that you're good at didn't could possibly do for other businesses so it turned out back in the day I was really good at a bee testing and I understand the mechanics are baby testing are okay if I'm running a $4,000

14:32a month business and I increase my conversion rates by 10% and that's where's $400 and months to me it's like oh that's cool $400 is worth a little bit of money to me given that I had this idea in my mind that I was really worth $3,000 months but if you would like come on it and asked me hey Patrick how does a bee testing work if your company isn't making 400 $4,000 a month what if it's making 4 million dollars a month I would say well a 10% gain is a 10% gain so that's where as they have plus or minus five million dollars a

15:01year I did not do that math for a while and then one day I did that math and started charging like consulting rates based on it and that worked out pretty well and my consulting rate in my career was about $30,000 a week or the same like my pitch to clients was basically I can make your marketing as effective as bingo card creators seriously so I'm going to say something which is going to be a little controversial and honestly I hate that I'm going to say it because I am a SAS guy I like if you opened my veins they would bleed software-as-a-service applications but if it's your first rodeo I suggest not

15:42doing you SAS and here's why there are huge barriers to successfully shipping a SAS in the first place and then keeping it up and running what does that mean it often takes you know several months to often you know say six months to get like the minimum viable version 1.0 of a SAS into the marketplace and it is a long slog particularly if you've never been so low shipping a software product before and then keeping it running there's a spectrum of say criticality for SAS businesses where bingo card crater when it assassins not too critical if it goes down for three hours that's unfortunate but it won't call us

16:22anybody's lives to be permanently altered there's appointment reminder appointment reminder has it can go down for up to three seconds if it goes down for more than three seconds life starts to get very very bad and that's invariant with regards to how much money your SAS is making and spoiler alert all SAS is make no money in the beginning so if you are getting a phone call at the morning telling you you need to you know log into your server right now into incident server maintenance or you need to deal with the heartbleed catastrophe or blah blah blah phone call at 3:00 a.m. in the morning when you're making

16:58like $200 from your sass a that's not a comma economically rational and B it's going to feel more al wise like just a punch to the teeth spoiler alert SAS doesn't make any money in the in the beginning there's this great great presentation online called the long slow SAS ramp of death which describes the revenue curve for most SAS companies that don't immediately hit a hockey stick I'm going to show you the first 18 months of a point reminders revenue curve right now and just for folks in the back who can't read it it started out making $20 a month and 18 months later it had achieved the

17:31commanding heights of $1,200 a month and yeah thanks guys and I was starting this from a position of advantage I had already run a business for four years at this point people like Joel Spolsky were coming out of the woodwork and asking me for marketing advice I was supposed to be good at this apparently not so much and I remember there was do you see this little jump here it's a it looks like a big jump on the graph but it's a jump of like $200 I killed myself this month with two weeks of full-time work on my own thing and two weeks of work for a

18:04consulting client then at the end of the month celebrated a sixty thousand dollar check from the consulting client and M RR plus equals 200 I was like oh what am I doing with my life so if you want to make a SAS if that's in your near term career goals and sasses and wonderful model recurring revenues the best kind of revenue I highly endorse it here's the glide path start by planting a flag in a market that you want to serve with something which is tightly contained and consumable so an e-book a wordpress plug-in even the first version of bingo card creator back when it was totally

18:40downloadable software something where if the website goes offline in the middle of the day the only thing you lose is a few sales rather than oh literally happen for appointment reminder at one time I had to restore service to the server by 7:30 a.m. New York time before little kids failed to get the the phone call reminding them to take the anti-cancer medication that was a lot of stress AR was making $2,000 a month at that point and that was way way way too much stress for $2,000 a month start collecting email addresses um you know you're going hear a lot about email marketing during the course of microcon

19:19it comes up every year you're also going to hear a lot more about pricing and charge more the reason we keep repeating the same piece of advice every single year is not because we love hearing the echos of our previous presentations it's because they're cheap codes for life so get email addresses and you know for like a pre-launch list for a book for giving out a free chapter whatever after you've established some amount of reputation in that in that industry you can use that and then piggyback better businesses on top of your existing platform you're oops you're going to want to start a productized consulting business I'll talk about that a little

19:53in a moment and then gradually you're going to transform your productized consulting business less from you doing the work to more your software doing the work so here's the naive implementation of like best practices ask for the bootstrapped entrepreneur you have a three-tier plan grid plan number one is $29 to $49 bTW I would suggest going $49 but I know that's a hard sell for people who were just starting out you think oh my man I'm not worth 49 I'm only worth 29 I literally had that issue about charging like 25 once per lifetime in the beginning you are worth the $49 if you're solving any problem which is

20:31valuable to a business anyhow - you're number 2 $99 it's like tier number 1 except it cost more money and there's a entry in our database which allows you more quota of whatever it is your application does and - you're number 3 $249 you'll get a few of them early on and then you'll discover they have all sorts of weird many enterprise requirements and you'll build those over the course the next couple months this is the naive way to do things if I was launching a SAS application today here's my pricing model I'm going and this is literally my idea for what my NASA and that next SAS application was going to

21:05be I was going to give this year to appointment reminder grind on it really hard sell it and then start a SAS application to do SAS price pages because I'm really really good at sass pricing really really good at like marketing I have a pre-existing audience in the software community tier one was going to be $99 a month where I give you some sort of interface that you can log into and make SAS pages that wasn't actually going to exist on day one that's the product I'm going to build to your number two $500 a month I don't just give you the capability of making the SAS page I will tell you what SAS

21:38pricing page I will tell you what needs to be on it and how we are going to improve that I'll give you three a/b tests that we're going to run every month I'm going to sign up for a cheap plan and Optimizely or visual website optimizer and physically run those tests for you at the end of every month I'll send you a nice PDF report so you can take it to your CEO and say it was really good that we paid Patrick $300 this month he increased our Mar our by 10,000 bucks and then tier 3 for between two thousand and five hundred dollars and ten thousand dollars a month

22:03whatever I thought I could get I would tell a company I will be your outsource to chief revenue officer you have some questions about what should be in your plans you have questions about what your pricing strategy would be blah blah blah I will take care of all that stuff for you you will go back to building this business and I would have sold three or four of these before day one and this is that would be difficult for where I was coming from in 2006 scheme that I had nothing but from where I am right now I could go to previous consulting clients and say hey you know I'm good for it

22:35give me your you know like okay on a handshake will he pay me 10k a month to do this I can get three of them to do that then I've got 30k a month of recurring revenue or you know for time is 2.5 KS 10 came on to recurring revenue on day one not year five and then I can use that to you know pay people to help me to help me build the SAS application that would eventually replace tier 1 to develop my marketing message to spend some time figuring out what sort of sales mishits work message works and grow the business from there that's my advice if you're thinking of

23:08starting a SAS business in the near future let me tell you about the most important bit of advice that I have ever ignored and I suggest you not ignore so I had this idea for appointment reminder it was going to be awesome it was going to use the Twilio API it was going to make no-show rates go down at dentist offices I told this idea to Pelle Dee who's the guy behind balsamic software at the business of software conference one year like yeah it's gonna be great awesome they'll make a lot of money and he says Patrick Patrick Patrick we've been friends for a few good years right

23:37can I'm gonna level with you do you really get up in the morning thinking I will love if I spend today and optimizing the schedules of dentist offices I said oh god no of course not who would want that but it's a great business it'll it will clearly work well it's like stop don't do it you're gonna spend the next five years of your life on this thing if you don't bounce up with excitement for it every morning you're not going to do the work that it takes to push it forward and you're gonna be miserable with yourself I'm like Pella D you're funny and I ignored

24:09him worse the mistake of the last ten years so um I would encourage you not to ignore feldy do something that you will love one of the biggest unfair advantages you can have is a confluence of like product market founder fit where you're building something for a market that you actually care about your product solves the pain you actually care about and you're the right person to be building that product and I'll talk a little bit about how that product market founder if it is something that I think we're going to have for starfighter and my new thing and why that's going to make it a joy to work

24:40with rather than something I'm slogging through every day so as you are layering on businesses with this you know leveling up tearing up towards a greater heights scale you should probably continue serving the same market because it will make your life much much easier some people in this audience are very good about doing that Brennan done for example planted his flag in freelancers and consultants five years ago or so now and he's got five or six or eight products he's he's got a large portfolio but they're all for freelancers or consultants he can reuse the same list you can reuse the same reputation you can really reuse the same

25:14learnings he has about what challenges they have I was not that smart I made bingo card creator for elementary school teachers and then I made an appointment reminder for the you know office managers at like dental practices and accounting firms and that made life very very difficult for me because I had you know I literally had 300,000 teachers who had used bingo card creator before number of dem whoever used appointment reminder a big fat zero and I had a reputation at this point from you know blogging for several years number of people in my target market who cared about a per point minder big fat zero it was not a great comfort lap now

25:52should I have just gone to overlap with the teaching market again that would probably would not have been the right choice for me because I was very sure about the time I got done with bingo card greater this is the last time I'm ever doing a b2c software or software which sells to teachers but I should have had a heart-to-heart with myself which point reminder and think not just for this business but for the business that comes after this one where do I want to be working what makes sense for me and what would have made sense even at you know early in 2010 it was pretty

26:20clear that I was good on this intersection of marketing and engineering I had a lot of buddies in the software industry they trusted me and liked me I should have done something you know software for software companies in some sense if I was going to watch a SAS application when I actually did that later when I started consulting and then doing productized consulting and now I'm doing starfighter all for software companies it's a cheat code for life it is unreal how much easier it is to get clients when I already have a list of 12,000 people who love getting email for me about how to make their software company better it's

26:51unreal how easy it is to close sales when I can go to 20 people who have bought consulting services for me before and the conversation literally has literally gone in some cases like this hey I just want to touch base with you I'm founding something which will be interesting to software companies in two months and some people were like I'm in what is it and no I like literally hand shook on six figures of revenue for some contracts after on the strength of like one hour of telling them what it is and it's like yeah you're clearly good for it we've done business before I want to

27:24do that whereas nobody and you know there was no hospital system in 2010 saying oh you have something that hospitals will find will find interesting well let me make it mad Rain Man money on you did not happen so as you were levelling up in these businesses and each business that you that you make should be kind of quite quite a step up for you versus the last business you want to be attacking a more salient problem both in terms of something what is difficult to attack and something which honestly as she is a little bit of an impact in the world bingo card creator I did like for the fad like

28:01working for last nine years to help you know help teachers help kids learn how to read that's nice but if bingo card later just like vanished the world would not be terribly worse off you know it's it's definitely a that's the word vitamin rather than a painkiller but later businesses were substantially broader in scope they were harder to execute on and that was both good for the business good for my clients and good for myself use what you have learned about engineering for your old businesses to build your new businesses use what you've learned about sales and marketing techniques you know if you've learned how to be the really

28:35good at running an AdWords campaign or for a for a small business try to apply that in your new business try to build on top of it I'm also trying to find the places where okay it doesn't obviously apply to this business most of the other people running this business don't you know they don't do ad works or they don't do SEO because that's just not something that's done in this industry but I have pre-existing skill in that I know something that they don't about it maybe I can find the angle that allows me to use that skill profitably on this new better business and you can just improve

29:05on like the sophistication of a business operation for example I started I was one guy alone in this kitchen and that was that me for quite a few years and then after that I hired a succession of freelancers for just you know one one weeks to two weeks at a time doing piecemeal work I had a long-term virtual assistant working for a while and then a employee and now I've got co-founders and so you know that scaling up in sophistication over time over the course of your career works out pretty well if you want to nothing says that you can't be a solo founder forever if that's

29:38right for you I I'll tell you why when I was given an opportunity late last year and he decided to stop being a solo founder in a few minutes so Rob asked me to talk about what was going through my head during like the the rough middle years of my career when I already had bingo card creator and bingo card creator was working decently but appointment reminder was doing the long slow SAS ramp of death up it was honestly really rough I um you know lots of people in the industry you think I'm a fairly smart guy I was hearing that on a fairly regular basis I was putting up

30:12blockbuster results for clients and in my own business it was just kind of puttering along both because I did not love the business so I did not want to work on business if I woke up on any given Tuesday and Tuesday was like okay I'm free to do a point or a reminder work today what would actually happened was a lot of League of Legends game games and it took a long time and there were a lot of points in here where I'm just like I should just quit this and do something I actually like and this might not be reproducible in terms of achieving motivation to not quit but

30:44I've been blogging about my business for forever since day one and I realized that if I was going to quit this business two years into it without having achieved anything of what I set out to quit I would have to write a blog post saying I quit appointment reminder and it sucked and now you know the fear of writing that blog post was a lot bigger than the fear of going bankrupt or and asking me about this later if you want to hear the gory details but at this point I had about $100,000 on credit card bills and that were you know sunk into the business I was not really

31:14feeling that at the $3,000 a month of the business was returning but eventually managed to pull it out how I pulled out well one thing running a portfolio business bingo card creator was able to fund a lot at the development I actually got asked in Silicon Valley so oh you're running this appointment reminder thing that's kind of interesting how long have you been doing it three years oh great who did your seed round bingo card creator got great terms yeah so it was funding the development in a large degree and then late in the game reminder started working both because I sunk my teeth into it and

31:51because I discovered how to do medium touch sales I would talk to you a lot about that but sell steli has an entire presentation going where he's going to talk about it so just listen this telly so recently I did a big chapter in my life for the last nine years I've been the bingo card grader guy I sold bingo card creator to someone her name is Beth she's a teacher I sold bingo card creator to Beth on April 2nd and so thanks very much so I want to talk about a little about what the process of selling it was like when I knew I should sell it and what's

32:28selling it did for the business and also how you you know if a sale is in your future maybe in the next six months maybe the next six years how you can start laying the groundwork for that to make it as stress free of a process for yourself as possible so when you know that it's time to move on from a business and if your business is not helping you achieve the the larger goals you have in life that isn't the number one signal I think I had a equip at one of the micro cops one year that I had three big goals with my business to live to learn and to love

33:01living being you know having a work-life balance where I would be able to feel the grass under my feet have free time with my wife do international travel you a car creator help me achieve that back when I started it but it was no longer necessary for it in the last couple of years love obviously I love my wife I love my daughter I want to love my customers too and I think back in 2006 I genuinely love teachers I loved helping them out with their problems and then came six years of being the sole customer support agent for bingo card grader and I think if you

33:32had asked me in 2012 hey Patrick do you love teachers I would have said I love teachers we aim to give best in the world customer support to our beloved teaching clients but it would have been a lie I had been accused many too many times of breaking the googles by teachers like I downloaded your software and now Google does not work give me back my googles or I will tell my husband on you actually happened that remains my best customer support inquiry in many years I actually met the guy at Google who broke the googles that day like I will buy you a beer to hear the story and you owe me a

34:09beer to compensate for emotional suffering anyhow if you owe and learning I had learned everything there was to learn about bingo car like selling finger cards over the Internet and AdWords on a search engine optimization by say like 2010 2011 and after that was just going through the motions of grinding it out every day I should have been you know engaged in new businesses that would allow me to continue learning sinking my teeth into new challenges that's what honestly really motivates me if you have stopped accumulating marginal advantages from running a business it might be time to move on you know if you are thinking about this in a

34:46planned manner you think okay my career is going to extend from right now for the rest of my life until I decide to retire am i continuing to make forward progress in terms of the skill set the platform the reputation the material advantages that I have to fill out the rest of the career a particular business has like hit that asymptote where bingo card creator was about as good as selling bingo cards on the internet could get could have ground it out for another like plus 10% if I had worked a lot harder on it sure what I wasn't going to learn anything doing that would

35:16just be grinding it out every day if you've if you've learned everything you're going to learn if you've accumulated everything you know you've got all the merit badges from that business start something new get new merit badges and then it's you'll know it when it happens to you you sometimes get signals from the business or from life itself and it's just it's clearly time for you to be done I can tell you exactly the one that happened for bingo card creator this friend named Jason in Tokyo Jason is also a software entrepreneur so we get together we talk shop and so I told Jason one day hey

35:46Jason you'll never guess what email I just got it's like actually I will you just got an email from an elementary school teacher she asked you a stupid question like the last eight times the event has started started a question with Jason you'll never guess what kind of email I got and guess what I don't run bingo card creator I've run a decent business you know I don't run bingo card creator because I don't like hearing stupid questions from elementary school teachers about bingo cards take it somewhere else and like I want more of what you're happy so I went out to get it so if you need to prune a portfolio

36:23project a project from yourself you've got three basic options number one is shut it down I think this one gets given short shrift in the community there's always people who complain when you know a business starts out they get a few customers and then the business doesn't work out in eighteen months later they say okay it's closing down in a few months and they get ambassador Don hacker news and Twitter and whatnot very important for you to understand this you do not owe the world your labor on any particular project if some customer is paying you $10 a month to you know build them a SAS application let's say

36:59hypothetically they were paying you $10,000 a month to be an engineer at their office what do you owe them in terms of ongoing availability in the United States you can walk in to their office any day and say this job I don't really like it any more I don't need to give you any reason other than I don't like it anymore two weeks from now I'm out of here that's what you get that's the guarantee of service you get if you're paying someone $10,000 a month if you're giving someone $10 a month your guarantee of service is basically nothing if your thing is something where you can just

37:29conveniently turn it down if you've got like an e-book business and for whatever reason the e-book business is not getting you to where you want to be in life just take down the web page see if anybody complains but they won't if it's a SAS application feel totally free to say all right 90 days from now the servers are going dark we're going to assist you in in getting to a another provider we're sorry it just didn't work out and that's all the explanation you owe anybody and people will will rant and rave about that on the net but it's true you owe your your first responsibility

38:02to so many people more than your the customers of your SAS company to your family to your friends to your community etc don't run a business that makes you miserable putting it into maintenance mode is another option I'm gonna tell you a little bit about maintenance about in a minute and selling it as another option we'll talk about that here so maintenance mode looks like I don't know if you can read this but this is my github graph of when I was actually doing work on a point a reminder sorry on bingo card reader so div like as a product bingo card Creator was done in early 2011 it achieved

38:35everything bingo cards solo every other net ever wanted to achieve soon after that I had a customer support rep at answering most of the email and so it just went into me maintenance mode I made sure my customer support rep knew that I was there if she had any questions that she couldn't answer I made sure she got paid every month I made sure the server stayed running but other than that I did very little development over the course in the next few years and that makes sense if a business is both capable of running and maintenance Mon indefinitely and if your business is stable both from a technical

39:04perspective from a market perspective the market isn't like crashing out from under you and if you've got good people running it for you and I was working with a PA named sugar and sugar has been a godsend to me for last four years she's been very reliable never had to replace her retrain a replacement if I was doing that every six months I would have shut down bingo card reader a long time ago sugar actually worked out so well that after after I sold bingo card grader I figured a way to retroactively Li get her cut in for a portion of the business so that's actually one of the things I

39:40love about being a bootstrapper if you attempt to do that as a funded entrepreneur the VCS and your board members will be like wait no you can't retroactively Lea cut in a customer support rep for a substantial fraction of the purchase price of the business that is just not the way cap tables work like let me run this by my board it's me me me my wife and Lillian a we're all in favor of cutting sugar in here and yeah anyhow so how do you know if the business that you're running is potentially saleable there's sort of a Goldilocks zone not too little not too much in terms of what revenue you're

40:15doing if your business is only doing $500 a month of revenue it's probably not worth someone's effort to both close the purchase of a business which by the way whether a business is worth $10,000 $100,000 or a hundred million dollars selling it is a painful time suck so no one wants to go through painful time suck to buy a business which is only worth $500 a month and then figure out how to run that and how to slap it into their existing operation similarly if your business is doing ten million dollars a month for you know some verified kind of thing like doing I don't know after Mason optimization of

40:49pricing for various products sold by the banking industry there might only be two or three firms in the world which both have the financial wherewithal and operational expertise to run your business that'll make selling it a lot harder but if your business is doing say ten thousand dollars or well a couple of tens of thousand dollars a year in in revenue or a couple of hundreds of thousands of dollars a year that's sort of the sweet spot for selling businesses these days your business needs to have low tight ongoing time commitment from the founder and you might not realize how much time you're spending on your

41:20business God knows I didn't but the people who buy it will because anything that you were doing as of the last day you worked on the business that they start doing on the first day they're working the business and they don't do will suddenly cause things to break and since people are sophisticated they don't want things you know they don't want to write you a check for several hundred thousand dollars and half things start breaking the next day so they'll want a rigorous accounting of what you do for the business exactly how often you do it how long it takes you and what skills you need to do that and why

41:48haven't you already outsource this to someone so you can prepare the groundwork for that by outsourcing it people do not want to write a check to your business or to you for several hundred thousand dollars and then have the business vanished two days later because of the Google algorithm update so saleable businesses have defensible revenue with low risk that they're going to just vanish people want to buy a business that's in a growing market something where there's clear ongoing need for this and there will be ongoing need for this five years from now ten years from now rather than some vanished kind of thing and this surprised me but

42:22a lot of people who buy software businesses are not software people so they might not have your level of technical skill you built it from the ground up they did not they certainly don't have your familiarity with the code base they do not want their expensive purchase to explode in a fireball on day one so you need to mitigate the technical risk there's ways to do that let's talk about it some early decisions you can make prior to building the business even or while you're building up the business that will make it easier to sell later in terms of what market and what problem you're checking pick something where

42:54that problem will always be a problem if you're solving hiring hiring will always be a problem if you're making additional money you know increasing the revenue of clients in the dental industry that will always be a problem there will never be a day where Dennis suddenly say it's like no no we're good we don't need any more money we don't want to buy anything to make us more money don't don't go after things which they're faddish in nature or they have a short shelf life to them one example of this is video games video games typically have a curve where they sell the most they're ever

43:26gonna sell in the first like one to two weeks after the video game is released and then they fall off a cliff it's very difficult to sell a video games business unless it's like a business business and it has a repeatable process for creating new video games technology stack you want to pick something which is simple and well understood there's many many sources of risk to your business and you don't want to be a you don't want to put your like risk bet on the technology if you're running a website run the website on WordPress there's lots of people who understand WordPress there's lots of great ways to host WordPress if you want

43:55somebody to to edit the WordPress site for you there's hundreds of thousands of developers who can handle that for you do it like that technology platform for a set for a SAS business build on top of Ruby on Rails or something which is pretty well-established in 2015 something you understand well and it will be here for a while don't build on top of like hey there's this JavaScript framework that came out three months ago which is made by you know a Stanford Stanford like undergrad and it is the new hotness right now like all the cool kids are using it because all the cool kids will be using something completely

44:28different six months from now and you'll have to support that piece of junk for the rest of your life and when you tell the client yeah you've got to support this piece of junk which by the way I'm the only person in the world who understands and I'm not available to answer questions about it they'll be like no I think I'm gonna buy an app that's written on Ruby on Rails or something that's the same where I can actually find a developer to handle this for me traffic sources you want two things diversity and defense ability of traffic so if your business gets 97% of its

44:58revenue from people coming from organic Google traffic and when you tip and they ask you wow you're really good at SEO what do you do and your answer starts with I've got this Trixie and they're going to think many people have said that about Google over the years and many of those people find that works out very well for them for two years three years five years and then one day Matt Cutts wakes up on the wrong side of bed and that business vanishes in a fireball and you don't want to say you should pay $500,000 for business which could at any time vanish in a fireball so you want to

45:34be able to say I get um no I get 40% of our traffic from Google SEO we've been doing that very well it's within the guidelines I can another 40% from add from Adwords we've been optimizing our AdWords campaign for the last couple years the remaining is a grab-bag of this and this and this it's defensible if any one of these like tight routes down a little bit not the biggest problem in the world and it's very difficult for a competitor to replicate starting from nothing because they've got to get good at SEO they got to get good adwords and they've got it and you know accumulates the links that we've

46:03got from these other places and then you want to have the founder involvement be a variable with the desires of the new owner of the business so if they want to run it in a hands-off fashion if they've already got 8 things in their portfolio and your thing is going to be the 9th and they just want to buy your business to slot it into the portfolio you want to be able to say this business is well understood we have good processes in place we have people to run the processes as of day one you don't have to do anything but some of the people will be buying your business to kind of

46:34you know give it a bit of a tune-up and you want to be able to say there are levers that you can move in this business that will allow you to make it better so for example when I was selling a bingo card greater you're not going to be better at doing SEO for bingo cards than I am that it's a very high bar no no buyer should reasonably expect the ability to do that on the other hand I have done no email marketing for bingo card creator for the last five years and any email marketing Pete's no email marketing so as of day one if you want

47:02actually grow this business I would suggest starting doing some emails or start you know move from I know that the charging model for this business is suboptimal its one-time it should be recurring as if day one you can start like transitioning from a one-time revenue model to recurring revenue model that's place both for you to put your stamp on the business and feel good about that and start growing the value of it what you'll need in place before you do a sale you want to understand all your numbers drop dead cold and this means your revenue numbers your expense numbers you want if possible having statements from bookkeeper slash

47:37accountants who have audited this stuff for you and you need to make sure that they actually add up because people will check my buyer actually got a due diligence report running my business and someone who literally used to work for Goldman Sachs got a copy of my database and a copy of every log that ever forgotten from PayPal and stripe and they manually compared them seriously and the due diligence report came out and said there was one misrepresentation about the state of the business a transaction on July 7th 2014 was charged back on in August of 2014 and this was not recorded in the books resulting in

48:13an overstatement of revenue of $29.95 we do not believe the statement of revenue to be material like holy cow that is the level of professionalism that you have you want to isolate the assets to be sold from the rest of your business either MailChimp account which was shared between Ford for things that I ran because I really wanted to save myself that $10 on MailChimp and so while I was going through one of the most stressful processes of my life of selling this thing I was having to re architect three other apps to use different MailChimp accounts or you know migrate from drip because I don't want

48:47to use MailChimp anymore for them and that was you know problems I didn't need my bingo card creator was on this the same Rackspace hosting account to the rest of my businesses worth because I thought well having two credit card you know lines on my statement from Rackspace every month is wasteful I'll save Rackspace the trouble of having that second credit card line in my statement and then I had to like move those feet PSS and I asked Rackspace what do you what do you do for moving a VPS between accounts and Rackspace is fanatical support answer to this was we fanatically support you not doing that

49:19and and what like well our our best option is you you know use some command in Linux to take a copy of the hard drive and then you like SCP that over to a new machine and then rehydrated and hopefully everything works like that sounds like a really bad idea that's what I had to do had to make a new account a new hosting provider and copy everything over and I lost like a week in my life dealing with you know the random technical technical debt that that implies so if you are doing something you know if you're starting your second business in the next couple

49:52of weeks you're thinking should I put it on the same VPS to save myself five dollars a month don't do that you're buying yourself a lot of pain later minimize the founder ongoing time commitments if you haven't already out sourced anything outsource it as much as possible block off a few months I'm gonna show you what the timeline for bingo card creator sale looked like but big of a creator it's a it's like the platonic minimal of how complicated a business could be and this process took me four solid months to complete the sale should you use a broker yes next slide I'll tell you why um when you're

50:31running a portfolio of businesses there's lots of stuff that you that you have to do and it's honestly very very stressful and and you're going to be trying to run the sale at the same time but your broker is going to do is we're going to find qualified buyers pre-vet them for you to make sure that they're not bozos and they actually have the capability to write a check for a substantial amount of money and they're going to deal with stuff that comes up in the process so after working very very hard for four months and by the way starting a new company at the same time

50:57and having a five-month-old helm at the same time I had not slept between the hours of midnight and 6:00 a.m. in literally two weeks prior to closing day I got to closing day I'm like it's great they're going to sign the sign the asset purchase agreement that makes the close of bingo card creator final and apparently the person was on the phone with the broker about you know the broker thought okay you sign on page 32 and they're like I've got one question that's about the price can I get like a 40% discount to it and this is after you know weeks of negotiation and thankfully

51:31the broker was like eh no this deal will not happen now and we will never do business with you again in any capacity and B they immediately started working on they had had a you know backup IRA in the wings for me which I didn't even know that one needed a backup fire which you do in case your buyer decides to pull out at closing and so they really really earned their Commission for me by the way the broker I used is Fei I think Thomas smiles is here from he's the founder of the companies over there lovely British gentleman give him your business they're the best guys in the

52:03industry this was the time when looked like so genuine February I was laying the technical and organizational groundwork you know like breaking up my Rackspace account getting things moved over yadda yadda writing lots of process documentation remarks I started working with Thomas they started working up the prospectus they gave me two hundred questions that I had to answer late March they found the buyer and then it fell apart once and they found two million Breyer April second the buyer broke contract April eighth the wire transfer hits my bank account and May third which is one month after April second my handover period expires which means I'm helping her for the first

52:41month to get the ropes of the business and after the handover period expires I expect to never say the word bingo again in my life what the process looks like um and huh I'm running what do you think Robin sorry the time of things five minutes left okay and so I won't be able to tell you too much about starfighter sorry but get me talk to me later and we'll talk about that I'll just get through the part about selling the business here's what the process looks like you gather data on everything all of your you know everything from how many subscribers you have in MailChimp to your transaction

53:17records starting from the mists of prehistory to your bank account details your books your AdWords staff your Google Analytics stats you also get a hundred free form questions about tell me about what technologies deficits made on who made it are they still available or do you know of any weaknesses in the technology have you ever had legal issues if so described them blah blah blah times 100 the broker works that into a prospectus which is basically just a document that says for sale one bingo card creation business we used and then lists out I think our prospectus was literally like 30 pages of information about bingo card creator

53:52which kind of surprises me and just have written a million words about it over the years so maybe not so much they find and vet a buyer and during this process they tell the buyers do not talk to the owner we will be very pissed at you if you ever talk to the owner except instead of talking through us which is great because it firewalls you from having to deal with you know 50 buyers that they might be working with in parallel they vet the buyer make sure they can actually pay the amount of money that they expect to be old pay and that they have a system sufficient level

54:21of sophistication to run the business that they want them to run you signed an LOI which says basically I strongly intend to buy this business one week from now for this price I'm going to enter due diligence now pending completion of due diligence it's on which isn't contractually binding but establishes expectations and only then do you start to diligence due diligence sucks because you literally like have to talk with people who who should be working at goldman sachs about $24.95 accounting discrepancies and they want to see everything like i got questions about you know your AdWords account says that you spent this much money in these

55:01months but you have a page on bingo card creator website which you didn't even disclose to us which shows your adwords totals per month and it has a different number of conversions per month explain the difference like oh well this one is you know Google score is a conversion in the month that it happens but I scored it in the month that the click happened because it was more useful for my internal decision-making processes but like great give us an Excel model that that shows that those two numbers are close to each other and so I literally had to with an Excel model great use of

55:28my time right um but had to answer a bunch of questions like that the contract was signed the buyer sends the money to an escrow service you then send the basically the domains and whatnot to the buyer and that process the broker will also help you with like remember to have the following 12 accounts ready to to give over the passwords and go we did that the buyer gets in touch with the escrow service and says okay it is what they said it was and then the escrow service sends you a wire for a large amount of money and then you do aftercare for the negotiate

55:59period and so that's the the outline of that I could tell you a little bit about Starfighter but I have no time but I'm around for the restive conference so please talk to me if you want to hear more about it does anyone have any questions [Applause]