How to find the right customers for your software business
Hey, everyone. Welcome to Build Your SaaS. This is the behind the scenes story of building a web app in 2018. I'm John Buda, a software engineer, and I have way too many meetings today so I'm gonna go do those.
Justin:Alright. Thanks, John. I'm Justin Jackson. I am the other co founder and, you are following along as we build transistor dot FM. Man, December is really, an odd month, isn't it?
Justin:It's really busy, you know, you're winding down projects for the year, maybe trying to madly spend your budget for the year. By the way, if you're trying to spend your year end budget now, might I recommend podcast 2019.com? When that launches, you will get a year's worth of hosting, podcast hosting on Transistor. So, if your employer or your own business or your team has been throwing around the idea of having a public podcast where you, you know, speak to potential customers or a private podcast for your team or your employees, now is a good time to get a year's subscription to Transistor. It it takes about a year anyway to build a podcast.
Justin:So prepay for the year, you get a discount and Yeah. Podcast in 2019. Where was I? Oh. A little tangent because I was saying December is weird.
Justin:It's reflective and yet you're also looking forward to the new year and your plans for the new year. You're working really hard trying to finish the year but you're also getting ready for, you know, to celebrate the holidays. Yeah. Just a weird month for all of you folks that want to build a software business, are building a software business, or have been doing it for a long time. I've got a good topic for this week.
Justin:It's all about the different types of customers. And, this came from listening to Rob Walling and Mike Taber on the startups for the rest of us podcast. Here's a clip of Rob Walling describing the different types of customers.
Speaker 3:I was talking with INR the other day, and I'm trying to you know, I have kind of mental classifications for business type or or or customer type. And, obviously, b to c is one a lot of us think of. Literally, you know, it's Verizon or it's if you're selling software, you know, FTP software to the masses. And then I was like, you know, there's this b to prosumer, which is kind of hobbyist. So let's say you're selling to photographers or, you know, who do it on the side who are most are not full time, but it's kind of this hobby they do on the weekend, and they most do it to kinda pay for their gear.
Speaker 3:They they charge people so that they can afford more gear because there's not so much money in it. You know? So it's a b to prosumer. And then there's b to a. It's b to aspirational folks.
Speaker 3:So you could think of it like I mean, frankly, it's like the smart passive income crowd. Right? Or, you know, it's folks who aspire to be something. People negatively use the term, which I don't I don't you know, I feel like it's kind of I don't know. It's a negative thing to say about someone.
Speaker 3:But it it's folks who want to be entrepreneurs, but they're really aspiring. So they are willing to spend some money, but the the churn is really high. And they definitely are consumers, but their behavior is different than someone buying cell phone or cable service, you know, because they are trying to invest in a business. So I actually think the behaviors of those 3 are are different. And then I like what you're saying.
Speaker 3:There's this b to VSP, very small business, which is basically the 1 to, you know, 1 or 2 or 3 person company. And they're gonna they're they're still gonna have price sensitivity, but I don't think as much as as a consumer. And then, you know, there's b to probably just regular small business and then b to enterprise. Right? I mean, there's a mid market in there, so you can go all all types of categories in there, but each of those is gonna have their own pros and cons in terms of price sensitivity as well as churn, sales cycle, all that stuff.
Justin:In the bootstrap world, the conventional wisdom is that you don't sell to consumers. And the reason is you typically just don't have the, the marketing muscle, the capital to reach enough people on mass. This is something that Jason Cohen recently discussed with me on the Product People podcast.
Speaker 4:The high level way I think about it is, it's very hard to make any business work. It's very hard to take in more money than it costs to run it, especially if you're being honest about your cost per hour, your opportunity costs. You know, I made $300 this month. Well, if your time is free, then no, you didn't.
Justin:Yeah.
Speaker 4:Right? That's not true. So, when you're really being honest about what opportunity costs and everything, it's really hard for any business to not lose money. That's, it's difficult. So, coming at it from that standpoint, and also from the view of like, and also you don't have extra cash, because again, the whole point of bootstrapping is do not raise money.
Speaker 4:So, it has to be self fulfilling. So, given these constraints and this problem, how do you make it easier? Like let's, it's already almost impossible. Let's not add more difficult things on top of those things. Yeah.
Speaker 4:Now, now I'm just, now you're just being crushed. It's too difficult. How are you doing? How are you interacting with customers? That's that's the comes down to, do you have to do sales or not?
Speaker 4:In what way do you have to do sales? Does that have to be in person that makes it even harder? For example, you could say, certainly pricing, pricing too low just makes it impossible. So if you you charge $10 a month, you just need too many. You need at least a 1000 customers just to get to like a basic run rate.
Speaker 4:That means you could quit your day job. And a 1000 customers is very hard to get to. It took, at least two and a half years for WP Engine to get to a 1000 customers. We now have 90,000 customers, but it takes a long time to get started. Every one of our competitors, everyone took more than 2 years to get a 1,000 competitors.
Speaker 4:It's not like it got easier once we trailblaze the market, maybe it got easier. Nope. Still hard. Mhmm. Other companies you've heard of like, FreshBooks.
Speaker 4:These companies took a long time to get to something like a 1000 customers. Therefore, you can't charge just $10.
Speaker 3:Mhmm.
Speaker 4:It takes the freaking long to get the thing going with enough revenue. Yeah. So, you also can't charge Well, actually, you could charge $1,000 and sell a few. That's a really interesting way to go. More likely is something like a $50, $100 price point.
Speaker 4:In other words, something where you don't have to do something Herculean in terms of sales or features in order to justify the price. Yeah. But you can get 2, 300 customers and quit your day job, not a 1,000. That there's a big difference. Another reason there's a difference between the 200 and a 1000 customers is to get a 100 customers, maybe 200, you can kind of just force it with crying, clawing, scratching, getting, calling people on LinkedIn, doing guest posts, doing podcasts like this.
Speaker 4:Just like work just really working hard. You can maybe eke it out if it's a product people really want. You can maybe eke into a 100 customers, 200 customers. So it's great if that's enough to, like, be able to do it full time. That's great.
Speaker 4:A thousand customers, you can't just do that and get to it's gonna be more, systematic.
Justin:Mhmm.
Speaker 4:AdWords has to work okay. Or maybe it's Pinterest ads, or maybe you've been writing for a while until you actually have an audience, or maybe it's an email list that you build up over time, and then finally that starts yielding. Obviously there's a 1000000 ways that it can go, but you're not gonna just scratch and claw and just kinda force it to get to a 1,000, not gonna happen. Yeah. So again, so that because the dynamics are different and how that works, therefore, so that kinda tells you the price point of something like 50, I think is is an ideal, like, area.
Speaker 4:Mhmm. For a lot of boost, rate, again, this is not rules. This is the rules of thumb, not rules. Yeah. It helps.
Speaker 4:It's just again, like these are all things that help. So there's lots of, there's lots of pieces of to whether the business is actually good. So you can't stop at is my idea good. You have to go to the money.
Justin:So as 2018 comes to a close, this is an interesting time to consider both these things. What Rob is saying and what Jason Cohn is saying for transistor. I believe I mentioned this already. Our metrics, our revenue metrics are currently public. You can see them by going to transistor.barimetrics.com.
Justin:And, again, John and I are a little bit nervous about this. A lot of folks, you know, do this whole transparent startups thing. We think we're okay with it, but, you know, it it feels a little bit like, wow, we're really putting ourselves out there. But we can now look at these numbers together in the context of what Rob just said and what Jason said. And yeah, I'd I'd like to kind of reflect on those things out loud for all you folks listening.
Justin:By the way, if you're listening right now, I love hearing from people that are listening to the show when they're listening to it. So if you could get on Twitter, I'm the letter m, the letter I, Justin. M I Justin. And just tweet me. Say, hey.
Justin:I'm listening to the show. This is episode what episode are we in? This is episode 39. So hey, listening to episode 39. And, yeah, that means a lot to me.
Justin:Okay. So this is where we're at right now in terms of monthly recurring revenue. By the way we launched in August so this is almost 5 months and we are at $4,281 in monthly recurring revenue. That gives us an annual run rate of $51,000. Our average revenue per user is $18.94.
Justin:Our the number of active customers currently is 226. And, you know, it's hard to know how you feel about those numbers. In in in one sense, I'm so proud of what John and I have done. But on the other sense, we're in this kind of odd transition time where we are serving over 200 customers and we are doing a lot of customer support, but we're not yet at the point where this business is supporting us full time. So let's talk about the type of customers transistor has right now and the type of customers we're looking to get.
Justin:So Rob Walling mentioned there's b to c which is selling to customers. That's like Verizon. That's iPhone apps. And as Jason Cohen mentioned, very difficult to bootstrap a business or really, it's those businesses are just very difficult to to start and run. There's a lot of competition.
Justin:It costs a lot of money to reach that number of people. You have to use Super Bowl ads and all these other crazy things. It it's all about scale. Right? You're selling a 99¢ app or you're selling items inside of Fortnite or you're selling iPhones or you're selling cell phone plans.
Justin:You just need so much scale to make it work. So Transistor is not built for consumers. B to prosumer. Now we definitely do have some of these folks. Prosumers are power users, serious hobbyists.
Justin:You know, sometimes they earn a little bit of money from their hobby. So, you know, a photographer who shoots a few weddings a year or a painter who sells a few paintings on the side or podcaster who has a few supporters on patreon. And like I said, we have some of those shows on transistor. One advantage I think that podcasting has in this area because like Rob mentioned they typically churn a lot higher. They cancel at a higher rate.
Justin:But one advantage we have is that it's actually really accessible for a show to, you know, start going And then we have a special Patreon link they can put in their show notes. And we've heard from a handful of customers who have, you know, put that Patreon link in their show notes. And now those Patreon supporters pay all of their hosting costs, decreasing the the chances of churn, etcetera. But we know and we've known if you go back through the archives, we know that be to prosumer is not going to be enough and that was not our target. The next group that Rob mentions is b to aspirational and these are selling to aspirational business owners.
Justin:Rob Walling used Pat Flynn's Smart Passive Income. Audience has an example. They're sometimes called wantrepreneurs. These are folks who are willing to invest money in this new idea they have, but they they don't yet have, you know, sustainable revenue coming in. And a lot of these businesses will fail, making them not great customers, especially if you want to build a solid business.
Justin:The 3 groups that John and I have been interested in from the beginning are the next 3. B to very small business. So this could mean selling to solopreneurs teams of 2 to 3 people. This is you know your freelancers but this is also folks like Mike Vardy who runs the Productivist podcast here on transistor. You know, he has a sustainable solopreneur business.
Justin:Taylor Jackson Photography, a sustainable solopreneur business. We have Jason Resnick, a sustainable solopreneur business. They make great customers. And you know, those 3 folks in particular want to build trust with a specific audience and they know that podcasting is a great way to do that. So we found them to be amazing customers.
Justin:They're very loyal. They get a lot of value out of the platform. And we have a ton of them. Out of those 200 some customers, the majority of them are in that $19 tier we have. The next level up from that is b to small business.
Justin:And again, these are loosely defined terms, but imagine teams between 10 a100 people. So we have customers in this group. Cards Against Humanity, I'm guessing has 30 people. Drift.com, the the chat widget people, they're a transistor customer. I think they have 10 to 15.
Justin:ProfitWell is a customer. They have maybe even 30 employees. When I got interested in doing a podcasting platform, this is the group that interested me because I saw some trends converging. I saw all of this data we were getting about the effectiveness of podcast advertising and how valuable the podcast listener has become. I'd also seen how a lot of businesses had used podcasting to reach an audience, to grow an audience, to earn trust with an audience and that had a tangible business benefit.
Justin:Basecamp has a podcast. Kickstarter has a show also on transistor. There's all of these teams that fit this kind of small business category and they make amazing customers. They're the ones that are going to pay $49 or $99 or maybe even more, once we have the feature set to serve them. But already, even without all of those kind of bigger features, they're already joining Transistor because we have support and features for teams.
Justin:We have really great analytics that we built specifically for teams that need to report at meetings. And like Jason Cohen mentioned in the interview.
Speaker 4:Usually, the smaller the company is, the more instant the tech support is. Yeah. Ironically, support is amazingly good at small companies.
Justin:The other thing that's been great about that particular market, these small business folks, is often the founders really resonate with our story. They they hear this show or they, you know, see a blog post I've written or they see me speak at a conference or, you know, they might be talking to John in Chicago. They resonate with us on a personal level and we have a big network of these folks. Here's a good example of this. Matt Netkow at Ionic.
Justin:Ionic has about 40 people, I think. Him and I have known each other for a long time. He started following my blog. He'd subscribe to my newsletter. We hung out in Slack and then he starts doing marketing for Ionic and they want to do a podcast called Bet on the Web.
Justin:And who do they choose? Well, they choose Transistor. So, this market is great for us and it's definitely our customer segment that I would like to grow. And, particularly, in the $49 tier and the $99 tier, I have some ideas around some features like we've been listening to these customers we know these folks and so for 2019 we have a pretty good idea about some really valuable things we could add to transistor for that group Okay. I'm gonna take a break.
Justin:I need to talk to you about our sponsors, but to do that, I'm going to add this. This is free music by Joseph McDade. Go to josephmcdade.com. He didn't ask me to do this, but everyone's looking for good music for their podcast and this is free music. Right now, I'm using a track called Backplate.
Justin:So I'm gonna keep this running and I'm going to tell you about this new course that Ross over at podcastinsights.com has just created. It's a 10 day how to start a podcast series. And in it, you'll learn some of the reasons people don't start podcasting. You should know that right away. How to figure out what to podcast about, tips and tactics to figure out episode ideas that people wanna hear, tips for choosing a podcast name, a lot of people get stuck there.
Justin:Basically, wherever you're getting stuck, this is the series for you. It's delivered daily over 10 days. You can find it right on the homepage of podcastinsights.com. Also, I want to tell you about alitu.com. That's ali tu.com.
Justin:Really, the hardest part about podcasting is often the editing, the recording, the producing, making it sound good. This is what Alito does. It removes all of that tech mumbo jumbo that you don't need to know and it takes care of the processing, editing and publishing for you. Go to elite2.com and try it out, especially if you've struggled with the editing piece before. Go try it out.
Justin:They have a really cool blocks editing system. I've tried it and I really like it. And thank you to both alitu and podcast insights dot com for being premium patreon supporters. Alright. So back to our discussion.
Justin:So far, we've gone through the different types of customers, the different classifications, everything from B2C all the way to b to enterprise. Although we haven't really talked about the enterprise space yet, and there is an enterprise play in podcasting. This would be companies like Omni Studio, backtracks.fm and megaphone.fm. And this is another thing I observed that made me interested in podcasting right now is that there are companies going after the enterprise space. Megaphone starts at $99 per month for their professional plan.
Justin:They also have an unlisted enterprise plan and I have no idea how much that is. Backtracks is $39 to $199 per month. Omni is $99 per month. Here we have providers in the audio space going after larger businesses, you know, bigger agencies, bigger podcast networks, radio networks in some cases and in megaphones case using dynamic ad insertion tech. There there's a lot of opportunity there and transistor isn't there yet.
Justin:We're not really at the place where we can play completely in that field but we can definitely compete with Megaphone at that $99 tier. We have plans to offer dynamic ad insertion. We're calling it dynamic content insertion or dynamic call to action And it's something that our customers are asking for and we have a kind of a unique spin on it. So it feels like there's opportunity for us to move up market as well. And we already have a little bit of evidence that says there's something here.
Justin:Both because these companies exist, but also because we're seeing some of our customers sign up for those $49.99 plans. And we have a good idea of what they want. This is the kind of thinking that John and I are doing right now. And by the We're not doing this thinking alone. In fact, in the in the last couple weeks, I've, you know, really been struggling through some of this.
Justin:And I reached out to a group of people. You know, actually, this is funny. You know who these people are. They are former podcast guests that I've had on any number of my shows. And since they've been on the show, we've developed relationships.
Justin:And so I wrote David Hanmire Hansen an email. I reached out to Rob Walling. I reached out to Nathan Barry. I reached out to Josh Pigford. I reached out to Jason Cohen.
Justin:You know, all these folks have have come around and, given me great advice. And none of that would have happened without podcasting. I have all these smart people, you know, looking at this business that John and I have created and they're saying, you know, this is looking pretty good. There's nothing guaranteed. This could still all fall apart, but where they are pushing me to look is how are we going to get more of those $49.99 customers?
Justin:What channels are we going to be able to use? We're probably going to have to look outside of the audience that John and I have built together. We're gonna have to look outside of my personal audience. It's going to take something to get us from where we are now to where we wanna be. If we add another 100 customers at $99 a month, that would be a a big big win.
Justin:And and going through this with all of you, just I'm I'm just standing in this room right now. It's 8:55 PM. I'm the only one here at the office. It's neon lights over top of me. It's just me in a microphone.
Justin:And I'm working this out. I'm just here by myself, but you're all listening. As I'm working this out, I'm encouraged. I'm encouraged by John and I's original thesis, which was podcasting is the best way for your brand to build trust with an audience. And I've seen this firsthand.
Justin:In 2012, I started this show called Product People. And, you know, it started just like any other show with just a handful of listeners. But eventually, it hit a 1000 downloads per month and then eventually grew to 10,000 downloads per month. And as the listener count increased, I noticed something else. When I asked new customers how they had heard about me, about 75% would reply, oh, I listen to your podcast.
Justin:And this has continued, you know, I I've had people come and visit me here in Vernon. You know, jump on a plane and actually fly here which is it's not easy to get here. And they do it because we've built a relationship. A relationship over this medium called audio. And obviously, if you're listening to the show, you've seen this as well.
Justin:Podcasting is powerful. Now, it still has a problem. It's hard. It's hard to do well. I'm convinced that it's one of the highest value channels, a business can use to earn trust with an audience.
Justin:But it's hard. You know, on average, 80% of podcast episodes never get to even 1100 monthly downloads. Only 5% make it past 8,000 monthly downloads. There are 550,000 shows on Apple Podcasts alone vying for listener attention. Now in some ways, this is an opportunity.
Justin:You know, compared to YouTube, there's probably, I don't know, 330,000,000 YouTube channels vying for for people's eyeballs. Podcasting still has lots of room to grow. But, it's still hard. How do you get your show noticed? How can you produce something that is unique, compelling, interesting?
Justin:There's also technical hurdles. What microphone should you use? Where will you host your RSS feed? How how do you record remote guests? So there is lots of work to be done.
Justin:There's lots of opportunity in podcasting right now and it fires me up. Even in this little niche of podcasting that I'm kind of looking at, which is branded podcasts and, you know, personal brands that want a podcast, solopreneurs that want a podcast. Any business that wants to use audio as a way of reaching their customers. We are interested in serving them. So in 2019, that's going to be transistors focus.
Justin:We're going to be working with, you know, quality brands and helping them to achieve success with podcasting. And that is what podcast 2,019.com is about. If you are looking to create a show. If you have been listening to our journey and you've been thinking about your own business or you've been thinking about your employer and going, oh. I would love to start a show but I don't know how or I'm just not quite there yet.
Justin:Let me just nudge you a little bit and say, why don't you make 2019 the year you podcast? If you go to podcast 2019.com, we have a waiting list there. We're going to be announcing that 2 different tiers, but both will include a full year of podcast hosting analytics and more from Transistor. You also get private onboarding. So we'll meet with your team to go over your business goals and how we could use podcasting to to achieve those goals for you.
Justin:Then will help create a personalized plan for you and your brand. This could include, you know, things like your show's concept, format and promotion. And And after that, we're going to be doing weekly workshops. So instruction every week from all sorts of experts. Chris Enns, our editor, will be doing some of these.
Justin:You'll get to ask questions, see demos, get kind of hands on instruction in a group setting. And then finally, a lot of people have been asking for this, a private chat group. So if you get stuck, you can jump into Slack, ask a question and, you know, get responses from us, but also the rest of the community. So I'm really excited about this. Again, if you are thinking about podcasting at all, podcast2019.com.
Justin:Other than that, I hope this show has been helpful for you as you figure out, you know, podcasting. As you figure out what kind of customer you're going to target with your own software business and what factors you should be considering as a bootstrapper. I've got all of the links, you know, links to that Jason Cohen interview and other things in the show notes. That will be saas.transistor.fm/39. Alright.
Justin:I'm going to thank our patreon supporters, then I'm going to answer a listener question or 2 and then I'll have to say goodbye because it is getting late here. So thank you to all the folks who support us on patreon.com/john. Justin. That would be colongray@alitoo.com, Samori Augusto, Mike Walker, Brad from Canada, Darby Frey, Kevin Markham, Adam Duvander, Dave. Say it with me.
Justin:Junta and also podcast insights.com. And we have 2 new patreon supporters. Sammy who has a podcast on transistor called Side by Side. I will link that in the show notes. And Dan Erickson who also has a podcast on transistor.
Justin:Thank you so much for supporting us on Patreon. Alright. Let's do a question. We have one here from Adam Duvander.
Speaker 5:Hey there. You've said that audio helps make a personal connection with your audience. I have lots of friends who are asking about video and stuff. And so I was wondering what makes audio better for connecting with people than video?
Justin:Podcasting is like the judo champion of the content world. It everything else demands your presence. It demands your eyeballs. You have to be kind of sitting stationary in front of a screen. That goes for video, that goes for blogs.
Justin:You have to be there. But podcasting, that's not true. Podcasting, you can be going for a walk. You can be driving. You can be doing the dishes.
Justin:I I tweeted the other day, you know, laundry time for me is podcasting time. Right? Podcasting is better when you're doing something else. And so it it fills in all of these spaces of our lives, which are often quite boring. You know, a big commute or doing chores or walking the dog and it makes them delightful.
Justin:And so I think there's definitely a space for writing. I still love to write. I think there's definitely a place for video and live video and tweeting. But podcasting is just it it created its own arena and there's nothing like it. It has other attributes as well that make it unique because it's only audio because you are both hearing just the words like you would with writing, but you're also hearing the intonation of my voice.
Justin:There is something I think more personal about audio. There's something more personal about you folks wherever you're at right now in the world doing whatever you're doing, but we are sharing this space together. And I don't have to kind of grab you like I would on YouTube. We can just kinda hang out. We can share 30 minutes or 45 minutes or an hour together.
Justin:And Yeah. I think there's something unique and special about that that all of the other content types just can't compete with. I had another question from Gavin, but it is getting super late and I really want to get this episode out. So Gavin, I'm sorry. I will try to get to your question, in the future.
Justin:If you folks have a question, transistor dot fm/ voicemail and I will see you next Tuesday. Thanks for listening.
