Everything You've Learned at MicroConf is Wrong – Chad DeShon – MicroConf Growth 2018

0:17Hi. Um I'm Chad. I had a job as a software engineer for 7 years. I loved it and then I did something really micro confy. I started a business working nights and weekends. It was B2B SaaS. Uh I charged more than I was comfortable with. I took sales calls in my car over lunch time with Fortune 500 companies. And I followed all this advice and it

0:46worked. The business was called Brown Bone. We did JavaScript SEO for all these um Angular JS, React, these kind of websites. Basically, if there's a bunch of JavaScript on the on the web page, then Google can't read it right sometimes and we would fix that for small customers and big customers. Uh it went well. I grew it, quit my job. We

1:09got to about 20k MRR. And then I I kind of fell back to to what I had known. I'd always had side projects before, so I started another one and it started to get some traction. I uh I decided to sell Brown Bone and focus on my new business. Uh what was that new business? Well, since everything had gone gone so well with Brown Bone, I thought, "Why not do the

1:34complete opposite this time?" boardgametables.com sells tables, physical, literal tables, shipped on semi trucks, sold to consumers. Um our average customer owns probably about 500 board games. These tables are all custom, built to order in Joplin, Missouri. Their prices range from $2,000 to $7,000 for a table. B2C does not have to mean low prices. It does not have to mean price sensitive

2:06customers. Um and I was selling tables, so I decided maybe we can get even less micro confy with this business. And I moved down market. I launched a Kickstarter for a new budget model of this table that started at $500. It was some assembly required, manufactured in China. And that Kickstarter raised $2.6 million. We sold over 3,000 tables. Um yeah, I don't know about you, but that's a lot

2:36of money where I'm from. Um Um but here's the thing with physical products, when you screw stuff up, it costs a lot of money to fix it. And we spent a lot of money fixing a lot of problems. I did not get to keep nearly as as much of that $2.6 million as I should have. Um but

2:58still business is good. We continue to sell the budget tables at a profit and we continue to sell the custom tables. And so now I've kind of seen both sides of things. I've done B2B SaaS and I've done e-commerce. And so I just kind of want to share with you some things I've learned from the other side

3:16of the fence, if you will. And maybe you can use these points as not like an absolute truth, but as a jumping off point to think about your business from a different angle. So uh here we go. Recurring revenue is overrated. Um and this is because it doesn't it doesn't all recur. Every month you've still got to bring new customers

3:36and to replace the ones that leave. And um this gets harder and harder as you grow until eventually your new customers are just replacing the churn and your MRR flatlines. I I bet most people in this room, a lot of you have had to deal with this at some point. It's not the end of the world.

3:53You're still making money. Um but it's a reminder that even if we call this recurring revenue, it really still all comes down to lifetime value. Every time you get a new customer in the door, that's worth a certain amount of money. Um one-time sales are underrated because um I'm not actually starting at zero every month. Um sure, I don't have any customers lined up to give me money next month, but my marketing is still all there. And if you ask me, how many tables am I going to sell in May? I'm going to say, "Well, about the same number of tables I sold in April. The SEO still works. The

4:29Facebook ads still run. Word of mouth engine still goes. My email list still sells. Um so the same number of new customers are going to find me again. So just like SaaS, every new customer in the door is worth a certain amount of money. And just like SaaS, if I can keep my LTV higher than my cost to acquire a customer and the cost to ship them the

4:50thing that they ordered, I make profit. And the more customers I bring in in that way, the more profit I get. LTV kind of abstracts away the difference between a one-time sale and recurring revenue. And one great thing about a one-time sales is um we get all of our money up front. Unless of course you're holding inventory, that's that's a whole 'nother

5:10ball game. Probably doesn't apply to most of you. Um but recurring revenue, you have a different advantage. You have more levers you can pull to increase your um your LTV. And this specifically, I mean, if you can decrease churn or you can increase expansion revenue, you can dramatically increase your lifetime value. That is the true advantage of recurring revenue. You are paying a penalty when you have recurring revenue of having delayed income and you're paying a

5:39penalty of having a harder sale. So make sure you're getting that benefit of decreasing your churn and increasing your expansion revenue cuz that's where the real benefit is. Don't force a business model onto a business where it doesn't make sense. Get value where you're from your customer where they're getting value from you. If they're getting their value up front, charge up front. If they're

5:59getting their value charge spread out. And so that kind of brings up the question, can I get my money up front and also get it spread out? Um no, those those words are opposites. You can't do both. Um but but we want to anyway, right? And so this is point number two. It leads me to uh

6:21When I sold Brown Bone, I used a broker. I used to FE International and they started asking me all these questions about my annual plans. And I didn't know I understand why at first. Um businesses are generally um sold on a multiple of last month or last 12 months profit. But what I didn't know is that sometimes sellers won't give you full credit in that calculation for annual plans you've

6:44sold in the last 12 months. Um and I'm not just talking about pro rating for the services you haven't provided yet. I'm saying that when calculating the value of your business, sometimes, not all the time, but sometimes annual recurring revenue is considered less valuable than monthly recurring revenue. And why is that? Because annual plans can be used to mask

7:03churn problems. Um all of our customers are churning after 4 months. What do you think we should do about it? I know, huge discount. Get them to give us all their money up front before they realize our software sucks. Um don't mask your churn problems, fix them instead. And I Yeah, just fix them, right? Way easier said than done. But it's also way better long-term to fix the problem. If you're masking it, you're you're just hiding it from

7:29yourself. And that's the worst person to hide it from. Um and if you are going to keep annual plans, monitor those users and find out if they have stopped using your product and consider them to be churned when they've stopped using, not when they've stopped paying. Um fix the problem at that point. You should be doing this really with your

7:47monthly plan users as well. Some customers are just destined to churn, right? With Brown Bone, we you get startups that would sign up and then they got a business and I I don't think there was anything I could do to fix that. And so maybe there's an argument there. Yeah, let's get the money from them up front while we can before before they go

8:06under. I don't know, but I think that kind of misses the point. Your path to growth is not squeezing as much as you can out of your bad customers. Your path to growth is making your product great for your good customers. There are reasons to have annual plans. Just make sure if you're going to do it, you're doing it because it's right for your business and not because that's what everybody else is doing. And if you're not restricted by cash flow, then I'd give a serious pause before offering

8:33big discounts for this. Moving on to point number three. Moving down market is possible, but it's different than charging less. When I launched the new table on Kickstarter, that table was clearly differentiated from our high dollar table. And differentiated, that's marketing speak for not as good. And um but it it brought us to new customers who were never never going to buy our more expensive tables. Now, we did lose some sales to cannibalization, but we also got more sales of the high dollar tables because the low dollar

9:07table gave us more brand awareness. Um it's been a lot of work. If this were micro conf starter edition, I would just say no, don't do it. You can't move down market. Don't even try. But this is growth, so I want to say it's possible. Just make sure your product is different. Make sure you're targeting an

9:22audience that's both new and larger. And be ready to work. Um there's a lot I still don't understand about this. It's tricky. It's really situational. So, moving on to point number four. A great thing about B2B software, great thing about B2B businesses, the reason people tell you to start these B2B companies is that if you can just show positive ROI, a business pretty much has to sign up, right? I mean, after all,

9:48that's that's what businesses do. If they can give you $1,000 and it makes them $2,000, it's a no-brainer. But the great thing about B2C is I don't have to show a positive ROI. Yeah, you guys know, it's it's not as easy as it sounds to prove it, right? There's opportunity cost, there's setup expenses, there's attribution problems. Did Did we really get that sale because we're using our software? Would Would we

10:12have sold it to them anyway? With B2C, I just have to make them want it. Look at this pretty picture. Do you want the thing in the picture? Give me money, you can have the thing. That That's what it comes down to. Logic can be tricky. ROI can be tricky, but want you can want

10:33anything. And here's the secret. Businesses are people. When a business buys your product, a person is making that decision. What can you do to make them want it? This is hard with B2 B2B, but I think it's still possible. Is your product pretty? Are all the cool kids using it? Does it make them feel more professional? Can they brag about it to

11:02their friends? What can you do to make them want your product for no logical reason at all? I'm afraid I may not have been quite the controversial talk some of you are looking for. So, let me give you one more point before I leave. Seriously. Relax. Take a deep breath. You do not have to cram information into

11:30your ears as fast as possible. Allow your mind to wander, have its own thoughts, and go on its own tangents. It'll It'll be okay. Selling tables is different than selling software, but people are people. I hope I've helped you look at your business just a little bit differently. Thank you.