Founder’s Journey: Building a Startup from the Ground Up

Founder’s Journey: Building a Startup from the Ground Up
By Josh Pigford
About this podcast
A weekly podcast by Josh Pigford, founder of Baremetrics, on his journey growing a startup.

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By Rommel Cabal chats with startup founders and thought leaders like Founder of Ugg Brian Smith, Braydon Moreno, Eric Bunnell, AJ Agrawal, Justin Ayres, and much more.
Latest episodes
Jan. 24, 2018
Where to publish something has becoming a difficult decision for a lot of businesses. You read so many stories about using various channels to distribute content and grow traffic, it's hard to know what does and doesn't work. Medium, in particular, has become a major player in the world of startup content, but is it really that great?
Jan. 10, 2018
When building a startup, so much emphasis is put on “the product” or even “the customers”. Everything else takes a backseat. On some level, and at some points in a company’s lifecycle, this makes sense. Of course you’ll make sacrifices and you’ll have to work really hard and work really weird hours. But eventually, you’ll have to stop. The downsides far outweigh the benefits and the damage done to you and your team can be detrimental. That’s what I’m writing about to day. Managing the long term health of you and your team.
Aug. 16, 2017
Last week I hit some sort of boiling point with life and work. July was an incredibly stressful month for me both, personally and with work. Just lots of extremes, and it wore me down. Every single founder is struggling with something. Maybe it's big, maybe it's not. But there's always something. Even the most successful founders deal with this stuff and don't know what to do. Everybody’s winging it.
June 21, 2017
There can be some really exciting days when you’re building a SaaS company, but the large majority are a slog. Just one foot in front of the other, slowly trudging your way up the hill in the muck. The hockey-stick growth you’ve envisioned feels laughably far away. Amazingly, you are growing every month, but it’s just…so…tedious. This, my friends, is the long, slow SaaS ramp of death. It’s perfectly normal and par for the course for the large majority of SaaS companies. Check it out!
June 14, 2017
Founding a company is hard. You’ve got an infinite number of decisions to make while simultaneously trying to catch lightning in a bottle with creating something out of nothing. It’s even harder when you’re doing it alone. Being a solo founder, in many ways, stacks the deck against you. You’re left shouldering the weight of every single decision and don’t really have any one to share it with. However, there are some ways to make it easier and, in many cases, it can actually be a major pro to start a company solo. Let’s take a look at some of the benefits as well as drawbacks so you can figure out if being a solo founder is right for you. Then we’ll tackle some ways to make being a solo founder a pretty great thing. Check it out!
May 17, 2017 Ask any startup founder how things are going and they’ll tell you it’s “going great”. They’ll talk about some new feature they’re rolling out, or a new round of funding. Or maybe they’ll mention how much user growth they’ve had or that they just got covered in TechCrunch. All signs will point to “crushing it”. But, for better or worse, there’s a very high probability that they are, in fact, not crushing it. The exact opposite, actually. We’ve conditioned ourselves to fake it until we make it, but most companies never make it…so we’re perpetually faking it and never actually being honest about our struggles. That prevents us from getting the actionable help and feedback we need and just perpetuates the false narrative that you’re some sort of failure if everything isn’t roses all the time. “That’s great, Josh, but certainly things aren’t that dire, right?” Wrong, little Jonny. Let’s look at the numbers. The data If dig in to our live SaaS Benchmarks you’ll find a few of interesting data points about small to medium sized SaaS companies. Average User Churn is 7.7% per month Average Quick Ratio of 1.4 Average Monthly Recurring Revenue is $19,000 Then one additional, crucial data point not listed on the Benchmarks page: the average SMB SaaS startup has 12 employees. Now, let’s translate that. Average User Churn Average User Churn of 7.7%. You may think that’s not terrible, and you’d be right. The companies that have 25%+ user churn are in a much worse spot. But what does 7.7% user churn functionally mean? It means that every single year most businesses are losing all of their customers! Every 12 months, they’ll not only need to replace the lost customers but add new ones as well. There aren’t an infinite number of customers and at that churn rate, you’ll quickly plateau. Outgrowing your churn will becoming impossible. Average Quick Ratio We’re going to have a quick lesson in growth efficiency, because it really puts things in perspective. To measure growth efficiency, we use a metric called Quick Ratio. How reliable can a company grow revenue given its current churn rate? That’s the question the Quick Ratio metric answers. To calculate your Quick Ratio you simply divide new MRR by lost MRR. The higher the ratio, the healthier the growth is at the company. To put it in a formula: Quick Ratio = (New MRR + Expansion MRR) / (Contraction MRR + Churned MRR) Say a company has $10,000 in MRR growth. That growth could be made up of any combination of MRR types (New, Expansion, Contraction, Churn) and the Quick Ratio shows you the difference in “growth efficiency” between them. Let’s look at a few scenarios of how that company got its $10,000 in MRR growth and what the Quick Ratio would be. Scenario A $12,000 (New + Expansion) / $2,000 (Contraction + Churn) = Quick Ratio of 6 Scenario B $15,000 (New + Expansion) / $5,000 (Contraction + Churn) = Quick Ratio of 3 Scenario C $20,000 (New + Expansion) / $10,000 (Contraction + Churn) = Quick Ratio of 2 Scenario D $50,000 (New + Expansion) / $40,000 (Contraction + Churn) = Quick Ratio of 1.25 All four scenarios result in $10,000 of Net New MRR, but Scenario A is vastly more efficient at growth as the company is adding the same amount of Net New MRR with much less effort. So, now, when you see that the average Quick Rate of most SaaS companies is 1.4, you realize how untenable that is. There simply aren’t enough customers in the world for any company to survive when your growth efficiency is in the pits. Average Monthly Recurring Revenue + Average Team Size In the companies we benchmarked, the average monthly recurring revenue was $19,000. I want to be very careful here and not imply that “$19,000 a month” isn’t impressive or something to be proud of. It’s a heck a lot more than a lot of startups ever make and for you, individually, it may be exactly what you want or need out of your business. But there’s another metric that when paired with this number is just frightening: the average team size is 12. Let that sink in for a moment. The average startup is making $19,000 per month…with 12 people on their team. Sweet beard of Zeus. Still crushing it? Still think all those startups are crushing it? This is the reason founders and teams get burned out. This is why CEO’s become Chief Fundraising Officers. This is why so many companies get “acquihired” for the people instead of the business (because there wasn’t much of a business there at all). This is why the fairytale “everybody’s crushing it” mentality is insane. It normalizes terrible economics. Now look, if revenue isn’t your goal (or you’re delaying revenue in the name of growing another metric for a while), that’s cool. Everyone has different motivations and outcomes they’re pursuing. There are certainly multiple ways to get what you’re after. But can we just be honest for a change? Can we stop pretending everything is amazing when the economics clearly show they aren’t? What’s the benefit of that to anyone? Next time someone asks you how your startup is doing, try not sugarcoating it. Maybe say, “You know, we’re having a tough time with user acquisition” or “churn has been a beast to tackle”. Then, instead of the incessant high-fiving and pats on the back, you’ll get legitimately useful feedback. You’ll likely find others are struggling with the exact same things and they may even have some business-altering advice for you. Remember, we’re all winging it.
April 12, 2017 Building a business makes relatively sane humans do some insane things. The past 10 years have been the modern day gold rush for tech. And I mean that in the sense where lots of people risk everything and make nothing while a few hit it big. And that “gold rush” culture makes people do some desperate things in the name of business survival. Every day founders have an infinite number of tiny decisions to make and it’s easy to get decisions fatigue. In a moment of weakness you may do something dumb that hurts you, your team, your company, your brand or any one of a thousand other things. So here’s an easy rule of thumb to help you when making decisions: keep it classy. Seriously. It’s that easy. Just ask yourself, “Am I being classy?” If the answer is anything other than “yes” you’re likely taking the route that may have short term gains but long term negative consequences. You don’t want to be a low class business. You never want to leave a bad taste in someone’s mouth. You’ll almost always regret your decision later on if you go the low-class route. Copying others’ product designs, badmouthing competitors, taking advantage of customers, overworking your team…there are just so many problems that aren’t solved but actually completely avoidable by keeping it classy. There are so many things working against the success of your business. So many variables out of your control. Don’t make it harder on yourself by choosing the low-class option. Successful businesses, the ones that survive the ups and downs, are built on having class. Sure, the occasional bad apple slips through and for whatever terrible reason the universe lets them succeed, but nobody actually wants to be the sleazy used car salesman. Deep down we all want to be respected by friends, family, peers, coworkers and customers. That doesn’t come from taking the low-class route. Make decisions you’re proud of. Decisions that, although maybe not the easiest route, don’t leave you feeling icky at the end of the day. Keep it classy.
March 23, 2017 Being an entrepreneur is a lonely place, especially if you’re the founder/CEO. Sure, you may have co-founders, but the reality is, there’s a lot of weight on your shoulders, a lot of pressure (self-applied or otherwise) to not drop the ball. To combat this, we’re basically permanently in “problem solver” mode. Everything needs a solution. Which is a natural fit because most entrepreneurs are self-taught and love to learn! “The widget sales page isn’t converting? Well how about imma throw myself in to a hole and RISE FROM THE ASHES LIKE A WIDGET SALES PAGE CONVERSION PHOENIX!” Yes, it’s naive, but it’s also how we were able to make something out of nothing. We just figured it out. We’re really great at just figuring it out. But here’s the thing: solutions aren’t binary. There aren’t “right” or “wrong” ways of doing things. There are just “ways”. Yet, we treat business problems as if they’re all just a series of variables that we just need to find the right combination of and BOOM! #winning Startups are like kids I’ve got three amazing kids. The other night I was chatting with my oldest (she’s 14) and she asked, “Dad, what’s the hardest part of being a parent?” My answer? “That you’re not a robot.” I said it jokingly, but explained to her that so many times as a parent you ask your kids to do something and so many times they just don’t do it. They don’t do it how you asked them to do it or when you asked them to do it. And I explained that even after years upon years of making the best decisions we can as parents, there’s still not a guaranteed outcome. It’s all kind of a crapshoot. Running a business is very much like having kids. You so desperately want to control all the variables. You run in the startup rat race because everyone else is too, so that seems to help solve for many of the variables. You read every startup article you can and your “to read” list has a backlog of 1,000 articles that are sure to change your business. You follow, favorite and retweet popular founders and marketers and feel like you’ve done real work. Then after you’ve done that, you go get drinks at meetups for entrepreneurs. Then after you’ve had your free drinks courtesy of you head home and read Lean Startup for the 9th time and go upvote some stuff about AI and machine learning on Hacker News because #thefuture. You fall asleep after your iPhone hits you in the face lying in bed and then you do it all again tomorrow. The echo chamber You, my friend, are living in an echo chamber and you don’t realize yet, but you’re deaf. In your effort to become an amazing problem solver, you’ve become the worst. You can’t see the forest for the trees, because you’ve completely limited the scope of your thinking to random things you read on the internet from other people just like you who are reading random things on the internet! It’s a big nasty cycle of everyone regurgitating the same rehashed tips and tricks in the name of “content marketing” and #growthhacking and it just doesn’t make you any smarter or better at your job. Every business is different because every problem is different. The way Joe solves problems for his customers are not the same solutions that Sally needs for her customers. Yet founders spend inordinate amounts time surrounding themselves with people just like them doing the same things over and over and expecting different outcomes. How to get out of the echo chamber Getting out of the echo chamber doesn’t make you a bad founder. It makes you an exponentially better one. You know how all of your good ideas come to you in the shower? What if I told you that you could be in the proverbial shower all the time? Getting out of the echo chamber lets you do that. Solving problems isn’t linear. Your brain doesn’t just run along the same path, connect all the dots in perfect order and magically arriving at an amazing solution. You need input from lots of sources. In many cases, you actually need no input at all. Your brain needs a break. It’s why when you’ve been staring at a coding problem for four hours and then go grab lunch and come back you’re able to solve it in four minutes. So, how do you get out of the echo chamber? There are two easy ways. Get a hobby Seriously. Something just absurdly analog. Take up gardening or woodworking. Make stuff out of concrete. Teach yourself jazz flute. Doesn’t matter. It just needs to be away from a computer or anything related to “businessing”. Get friends who aren’t entrepreneurs This is crucial. Living outside of Silicon Valley makes this really easy for me. None of my close friends are in tech. My friends are filmmakers, teachers, writers, florists and print designers. Their jobs are fascinating and we never talk about the tech world. The key here is giving your mind a break and gaining input from seemingly unrelated areas. Stop reading business/startup books. Most are 90% fluff anyways and they’re not covering anything new. Stop surrounding yourself with people and things that are just other versions of yourself. Go be interesting. Not only will it help you actually run your business better, but when you’re done with that business or have moved on to other things, what’s left is that you’ll still be an interesting person and not just the shell of someone good at adding noise to the echo chamber.
Feb. 1, 2017 I’m done. I’m tapping out. I’m bowing out of the startup rat race. No, we’re not shutting down Baremetrics. Very much the opposite. I’m just finished subscribing to and following the traditional startup mentality as we build our company. In June 2016, I realized we had less than two months of runway left. We had an existential crisis on our hands, the kind that you’ve read about hundreds of times. The kind where the business was there one day, then all of the sudden just…wasn’t. We were just burning money way too fast. We had to course-correct very quickly. The whole team took a 15% pay cut and I took a 30% pay cut. Long story short (a story that I’ll write about more in depth in the next month or so), we got back on course. Everyone is now back up to full salaries and we’re profitable on top of that. We’ll be a million-dollar company by this summer. But getting here has been quite the struggle. Playing the part The way that we ended up in that situation was just such a classic “silicon valley” scenario that I’m honestly embarrassed to even talk about it. Raising multiple rounds of funding (we had 2 rounds totaling $800k, which is honestly small by most SV standards), hiring fast, spending faster, pushing hard for the mythical “hockey stick” growth. Beating ourselves up when we didn’t have that growth. We were embracing it all. It wasn’t like our investors were breathing down our necks demanding this, they categorically were not. It was self-prescribed. I was choosing it. I was willingly playing the part. “Hey! We’ve got a bank account full of money! We should spend it! Right? Right?!?!?” I wasn’t trying to be negligent with the money. I was just overly optimistic about revenue growth. Our revenue was definitely growing month over month, but my eternal optimism believed that it’d magically start really growing in “just a few months”. Instead, our revenue growth has been annoyingly steady. There’s no hockey stick. Just good ‘ole fashioned “normal” growth. Baremetrics MRR for the past 3 years Then the lightbulb went off This past November I took a much needed break, completely disconnecting from work for 10 days. It gave me a chance to pull my head out of the startup hole and get some clarity on things. I realized that for the past couple of years we’d been in this weird quasi faux-startup “gahhhh we need growth!” mode. I say “faux” because we actually have revenue, which the majority of the typical SV startups don’t, but we needed so desperately to get profitable that we were just throwing out things left and right hoping something would stick and be the magic pill. We were launching things and immediately heading to the next big idea on the list because our time was running out. And yes, I understand, this is borderline comical to anyone in the bootstrapped world or really anyone outside of “startups”. But like I said, we had found ourselves fully embracing “silicon valley startup” mentality. The non-existent race That 10 day break gave me actual perspective. We’d been trying to build Baremetrics like there was this imaginary startup finish line. As though we could lose or even come in first. We were treating our company like we were in some race for time. But there is no race. There isn’t another runner we could lose to and we can’t “come in first”. Everything you read about building a startup implies there’s a formula. That doing X and Y gives you the highest probability of Z outcome. Jason Lemkin, who really does have some amazing advice around building SaaS companies (especially on the topic of sales), wrote this a couple of years back: Can you really, honestly, commit to obsessively thinking, worrying, futzing, stressing about how to do The Impossible. Every. Single. Moment of the day. Nothing else, but work. Even when you are playing with the kids. Having dinner with your husband. Because that’s what it’s going to take. What the actual hell. Not only is that not necessary, it’s incredibly unhealthy and completely unproductive. Do not obsessively think about your startup “every single moment of the day”. Doing that is what kills startups every day. Founders get burnt out. CEOs make terrible decisions inside of a vacuum. All because they lose perspective working inside their bubble. I get why people read stuff like that (or any advice from people who’ve had some big payout). We try to find patterns and formulas in everything to make sense of it. We think “well if they did those things, then I can do those things too and also succeed!” But that’s not how life works and that’s not how business works. Redefining success So many entrepreneurs think that the end goal is a big acquisition or going public. They model their actions based on the handful of atypical and statistically improbable stories they read about. They read advice like the stuff above talking about sacrificing every facet of their life for their business, and they think that’s some way to live. But it’s not. It’s not a way to live. It’s not healthy. It doesn’t make you interesting. It’s not fun building anything that way. It, statistically speaking, likely won’t even make you very much money. So what if you changed what “success” is? What if success was paying yourself $150,000 a year and building a real sustainable business that you build up for 10 years and sell for a few million? (No, that’s not considered a success in Silicon Valley.) Or maybe you never sell it? What if “success” was paying yourself $30,000 a year and traveling the world with your family? What if “success” is building an amazing place to work where your team is paid really well and actually enjoys working there (instead of having people who jump from startup to startup playing the equity game)? What if “success” wasn’t attached to team size but instead was attached to customer happiness? There are an endless number of ways to define “success” and it’s the definition of insanity to think there’s only one way to do it. Redefining success to something different than the way Silicon Valley defines it doesn’t mean you aren’t ambitious. I’d argue following a formula is the thing that isn’t ambitious. No, creating your own definition of success and doing things the way you want to do them…that’s success to me. That’s the ambitious thing. Because doing things your own way, on your own terms, is where you’ll find fulfillm
Jan. 18, 2017 There may be no topic in the world of business that spurs such impassioned responses than self-serve versus manual cancellation of a subscription. Let’s just say the word “evil” gets tossed around a lot. There’s a lot that gets overlooked in the conversation about this, so I want to walk through the different sides of the arguments for/against and try to keep things as rational as possible. I sincerely want to have a constructive conversation about this topic as I believe there are in fact scenarios and reasons when removing self-serve cancellation makes sense for a business. So, we’ll talk through when it makes sense, how to do it in a way that is as customer-friendly as possible as well as how not to do it. I’ll also address some of the common concerns people have with removing self-serve cancellation. Note: This is a topic people feel incredibly passionate about. The one thing I ask is that you at least entertain the idea that the world isn’t black and white and that most businesses (especially small startups) aren’t inherently evil. Everybody’s winging it. One startups experience with removing self-serve cancellation Back in February 2015, we were having some serious issues with churn. It had been creeping up from an already-less-than-stellar 6% to an unsustainable 13%. If prior months’ trend were any indication, in a matter of months we’d be hemorrhaging customers at a rate that would have put us out of business. Something needed to change. We were trying all sorts of methods of getting feedback, from including a “required” open text area for feedback when cancelling, to requesting phone calls, and everything in between. Our one and only goal was to figure out why people were cancelling. But none of the feedback we were getting was actually actionable. Those open text areas would just result in either people slamming their hands on their keyboards at random or at best writing “cancel. bye.” The emails and phone calls we were trying to schedule generally fell on deaf ears. No matter what we tried, we just weren’t getting enough actionable feedback to fix anything. So, we decided to take a more drastic measure. We removed the ability to cancel directly in the app. You’d need to message us if you wanted to close your account. We certainly had some reservations about this. No one loves an extra step to cancel a service. But we were committed to handling cancellations requests as fast as possible while being as genuinely useful as possible (which I’ll talk about in a moment). The results were fantastic. Not only was the feedback actionable, but we were actually able to save about 15% of cancellations! People would write in saying they wanted to cancel because we lacked certain functionality, but in many cases we either had a feature they needed or were about to release it. For a solid year, the feedback from manual cancellations continued to be quite actionable and we could count on one hand the number of people who responded negatively to the process. We cut our churn in half during this period thanks directly to the feedback we received. And more importantly, this literally saved Baremetrics. But as our churn decreased and the major holes were plugged, we found the feedback less and less useful. The reasons for cancelling were boiling down more to things we had no control over (going out of business, changing business models, acquisitions, etc). After nearly 2 years of manually processing every cancellation, we reimplemented self-serve cancellation. How to do manual cancellations in a way that doesn’t bring out the pitchforks The reason our manual cancellation process worked for as long as it did is that we were committed to doing it in a timely and helpful fashion. When I say that someone was required to contact us to cancel, most people instantly think of some terrible experience they’ve had with their cable provider. Sitting on the phone for hours, getting transferred to a dozen different sales reps, being offered increasingly larger discounts to stick around. Nothing could be further from reality with our process. The key to doing manual cancellations correctly comes down to two things. Make it unbelievably easy to get in touch. We had a whole pile different ways to get in touch nearly instantly. You could live chat, send in an email, send an in-app message, tweet at us or yes, if you wanted, you could call us. Respond quickly. They’ve made the move to get in touch, now you need to reply as fast as humanly possible. Many times we’d respond within seconds or minutes, and almost always within a few hours (even during the evening). After someone would write in asking to cancel, we’d respond with something to the effect of… Hey Sally, happy to take care of that for you! Before we do that, would you mind letting me know why you’re canceling? Would love to learn how we could have served you better. Most of the time, we’d get great feedback about exactly what was going on and why Baremetrics wasn’t a good fit for them any more. We’d then promptly cancel their account (and many times refund them) and wish them well. What you definitely should not do is argue with the person to try and convince them to stay around. You should try to be as genuinely helpful as possible throughout the process. You want to understand why they’re cancelling and then act accordingly. This is why we were able to save some 15% of cancellations because we found that those customers didn’t want to cancel, we had just done a bad job of surfacing functionality within the app. So when we identified what was going on, it was actually more helpful to show them they didn’t need to cancel than it was to just go ahead and process without asking any questions. When to try out manual cancellations So when does it make sense for your business to test out manual cancellations? It certainly isn’t for everyone and I don’t believe it’s a great long term solution, but it can be a really effective tool. If you’re churn rate is double-digits and you aren’t sure of the exact reasons why, then trying out manual cancellations for a period of time is likely worth it for you. Churn is ultimately the result of your product not solving the problem the customer has. If you have double-digit churn that’s increasing and no clear path to reduce it, you’ll soon have an existential crisis on your hands. Manual cancellations can make a huge difference in your ability to grow (or to even continue existing as a business). John O’Nolan of Ghost said it well… 1) Do A+ thing & go out of business 2) Do B- thing & survive “Founder” means making this decision 100x per week. 1 user’s poor cancellation UX can fuel positive UX changes for 100,000 new/existing users to have a better experience. You should keep doing manual cancellations only as long as the feedback is actionable and you’ve pinpointed what needs to be done to fix your churn problem. Common objections to requiring a customer to contact you to cancel I believe I’ve covered most of the reasons why doing manual cancellations can be really beneficial to your business, but let’s tackle the two most common objections. “It’s a dark pattern” I’ve heard this one so many times, so let’s be clear: “I don’t like this” does not mean it’s a “dark pattern”. A dark pattern is “a user interface that has been carefully crafted to trick users into doing things.” Manual cancellations aren’t tricking anyone. They aren’t preventing anyone from cancelling their account. Are they the most ideal UX? No. Building a business is constantly making the “A+ and die/B- and survive“ decision. “It’s not customer friendly” Partially agreed. There’s more to it, though. Yes, being able to click a single button and be done is the easiest thing for the customer, but remember the scenario I mentioned above about missing features? Many times (15% of the time in our case) a user wanted to keep using Baremetrics but thought we were missing a feature they needed. Manual cancellations surfaced that in a way that “instant, self-serve cancellations” never would have. The feedback from those cancellations not only let us help those customers, but it helped us as a business improve the product in a way that future customers wouldn’t have those issues. Arguably that makes the practice “friendly” for many customers. Again, temporary less-than-ideal user experience for a few in exchange for long-term positive improvements for many. Business is a balancing act At the end of the day, you will frequently have to make tough decisions to stay in business. That doesn’t make for great marketing copy, but neither does “we’re shutting down because we couldn’t figure out how to make the product better”. The most dangerous thing you can do in business is assume that there’s only one way to do it, that there’s a formula for success, that what worked for Company A will also work for your company. None of those are true. Businesses are unique, living, breathing, ever-changing organisms. If you sit idly by assuming things will just magically improve, your business will die. Some decisions will result in unhappy customers, but no decisions will result in more unhappy customers than the one to shut the business down. Find the balance of doing what’s the “most best” for both the business and the customer. The two go hand-in-hand. Some days the scales will tip more towards one over the other and vice versa. But as long as you work on simultaneously improving both, you’ll be just fine.