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SaaS podcast: build a web app in 2018

Build Your SaaS podcast

If you haven’t heard, on top of my MegaMaker activities, I’m building a new startup called Transistor.fm with my buddy Jon Buda. It’s a hosting platform for podcasts, so naturally we wanted to kick things off by creating our own show. It’s a SaaS podcast, where every week we answer the question: what’s it like to build a Software as a Service business in 2018?

About the Build Your SaaS podcast

In 2004, 37signals started a SaaS revolution when they launched Basecamp, their project management app. Along with the launch, they open sourced their development framework: Ruby on Rails. Now, for developers and entrepreneurs, it was easier than ever to create a web app. There was a bit of a gold rush: conferences like Future of Web Apps attracted thousands of entrepreneurs, developers, designers, and product people. Everyone wanted a piece of the recurring revenue pie.

It’s been 14 years since Basecamp’s launch. Since then, some folks have succeeded in creating profitable SaaS business. But many failed. What’s changed? Big players have emerged. Competition has become fierce. The “low hanging fruit” has been gobbled up.

Is there still space to build a bootstrapped startup now?

Jon and I are going to find out!

You can listen to the show here. (Or, subscribe on Apple Podcasts)

Listen now

Episode 1 summary: how to find a co-founder

When building a SaaS, going alone is a tough road. But finding someone to work with can be intimidating as well. Jon and I talk about how we found each other, the steps we took to safeguard each other in business, and making sure we’re in alignment as we try to build and launch Transistor.fm.

Listen now

How do you find a cofounder?

  • Go to events!
  • Build your own projects: make stuff, tell people.
  • Build long-term relationships (“I’m never going to team up with someone I just met”)

What should you look for in a cofounder?

  • Complimentary skills
  • They should have their own network
  • Trustworthy
  • Positivity
  • Values

Make sure you…

  • Sign real legal documents!
  • Use Stripe Atlas
  • Be really up-front about:
    • Your values
    • Your aspirations: what are you trying to get out of this?
  • Talk to a lawyer

Hi, I’m Justin Jackson, the founder of MegaMaker.

I’ve been working with SaaS companies since 2008. I was the Product Manager at Sprintly and Mailout, and have consulted on marketing & growth for startups in London, San Francisco, Boulder, and Portland.

Currently, I’m building a new startup called Transistor.fm (with my friend Jon Buda).

I’ve also been featured in:

Justin Jackson has been featured in Fast Company, Inc Magazine, Lifehacker, CBC

Building software for podcasters – Josh Nielsen from Zencastr

Josh started out trying to build a “GitHub for music.” When that idea didn’t pan out, he still wanted to do something with Web Audio and WebRTC. So he started building Zencastr, which gives podcasters the ability to record “double-ender” interviews in the browser.

Josh Nielsen from Zencastr

What’s the name of your business or product?

Zencastr helps podcasters easily record both sides of an interview, with studio quality.

When did you start working on it?

“Initially I was trying to build a GitHub for music, called Soundkeep. I pitched the idea at Techstars. One of the mentors mentioned that podcasters have a problem with recording “double-enders” in Skype. It was November, 2014.”

“In a way, I got lucky. I was in the right place at the right time.”

What did your journey to profitability look like? What were your biggest struggles?

“I didn’t launch until May, 2015. I had no waiting list. Sent out the link to a few friends. Nobody knew, nobody really cared. Early feedback was really rough. Nobody was really using it initially, so I went on Twitter and started searching for people swearing at Skype and I would tweet to them.”

“July 12, 2015 someone put it on Product Hunt, and that took me from 200 to 1,000 users. Since then, I’ve grown to 33,000 registered users.

“It wasn’t until November, 2016, that I took it out of beta, and started charging people for it. I ran a free beta forever. It’s tough, people don’t care if your software works 86% of the time.”

“The only reason I officially launched when I did was because I got pressured into doing a TechCrunh post. The article ended up being terrible; I’m never working with them again. TechCrunch readers aren’t really my target market. They didn’t do very good research. They used my old artwork. Product Hunt had a bigger impact for me.”

“So, after I launched officially, I started getting people signing up for paid accounts. The first month, I think I did $12,000 in monthly revenue. I had been building up for a long time, I had something like 10,000 registered users. About 600 of those got paying customers.”

How did you choose a price?

“I asked a podcaster I knew how much he’d pay, and he said ‘$20 / month’ so that’s what I used for a price.”

Is there a certain type of person that buys Zencastr?

“One thing I’ve learned is that there are different categories of users. You have the ‘brand new’ podcasters, and they want to say something. You have folks who have been podcasting since day 1, and have a $20,000 studio at home.”

“In terms of business mindedness, there are college kids who just want to talk about League of Legends. That’s why I keep the free plan. Then I have business users, who have a side-business or a side-product, and the podcast is a funnel for their business.”

So, most of the folks paying for Zencastr are people with a business or a product, and they’re using their podcast as a marketing channel. These are business people, it’s another way to communicate their customers.

“More and more, a podcast is just another facet of your marketing strategy. You’re going to need a blog, a podcast, and social media. It’s a box to check. You have to make it easy for those folks, because it’s not their whole life. It’s business users who only have 45 minutes of time.”

How much profit does your business currently generate?

“Currently, we have 33,000 users, and about 1,700 paying customers. That’s about $33,000 in MRR.”

What did you learn? What advice would you give aspiring SaaS folks?

“I really underestimated how much time support requests would take. There were definitely weeks that went by where I was just answering customer support, and not making progress on the product. Now I have customer support reps that help me.”

“Podcasters churn a lot. It takes a lot of work to keep a podcast going.”

“Justin Jackson did some marketing consulting with me. He gave me a lot of advice that I haven’t had time to implement yet! There are lots of actions I could take that would definitely increase sales.”

“It’s really hard to hire for something you haven’t personally done yourself. I have to dig in and learn the activity myself, and then I can hire.”

How are you planning on improving your business this year?

  • New features, new products.
  • My revenue goals: $1 million ARR (I’d need help for that).
    • I want to be able to buy first class travel tickets.
  • I love greenfield product development: I want to make Zencastr a one stop shop.

What do you think aspiring product people get wrong about building profitable products?

  • Don’t do “information gathering” for too long!
  • Get started: put something out. “Even heading in the wrong direction will give you more progress than reading a bunch of books about what you should do.”
  • Twitter gives you incredible access to people. Find people complaining!

Listen to the full interview here:

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How to build a Shopify app – Björn’s journey to $300k in profits

Want to build a Shopify app? Björn started a side-business on the Shopify apps platform 6 years ago. Now he’s making $275,000 in profit per year!

Bjorn Forsberg on Shopify Apps and profits

What’s the name of your business or product?

FORSBERG+two. Originally named like that for my wife and daughter (they’re the +two) but now we also have a little boy, so really it should be +three. My business has 4 products, all of them apps for the Shopify e-commerce platform.

What’s the URL for your product?

www.forsbergplustwo.com

Although the main channel for customers is through the Shopify App Store.

When did you start working on it?

Started as a side project in 2011, alongside my full-time work at an investment back where I was a Business Analyst / Product Manager at the time. First app OrderlyPrint was launched in early 2012, and cost me $2000 to have developed in India.

The overall goal of me starting a business was to increase my freedom, and ensure I had more time to spend with my young family. Our first child was born only a few months before I decided to start, so my journey is not one focused on world domination.. but one of creating a business I love and that fits into my familty life.

What did your journey to profitability look like? What were your biggest struggles?

OrderlyPrint started getting customers from day 1, but it was only 1-2 new users per day so by no means fast growing. I would work evenings for 30 mins or so answering customer emails, thinking up new features and gaining reviews to climb the App Store rankings. In the beginning I found it quite hard to limit the amount of time I spent on the business, and we had to set some rules at home to ensure I only did it once my daughter was in bed.

I did not know how to code myself, so I would save up a few months income and then have new features built for the saved money. That continued for over a year, and eventually I wanted to actually keep some of it myself to stay motivated and justify the use of my time away from family. I had also just invested $15,000 in a new version (rewrite) of the same app, which turned out to be a bit of a flop.

So I started to learn how to code, digging into the app that I had designed and then working out small bug fixes or feature improvements. I scaled back on outsourcing as I got more experience.

After 2 years the app was making just over $4000/month, but then Shopify launched a competing app for free. Sales slowed, and it felt pretty dark. However, I then came up with a new idea which would leverage on a shortcoming in the free Shopify app. So I designed and built my 2nd app Order Printer Templates, which was an easy way to create customised/branded invoices, packing slips etc, for use in the free Shopify app. The app was a one-time payment style pricing model, so users would pay for a template once and then could use and update it as much as needed.

The toughest part up until this point was really staying motivated and seeing the long term possibilities. I had the luxury of doing it as a side business, so was able to wait it out and let time and compounding growth do it’s thing.. which I think is a big factor in me making it this far.

The new app took off more than the last, and I was starting to get close to my normal income at around $10,000 / month. In 2015 I resigned from my job to work on the apps full time. My wife thought I was crazy, and so did my workplace. Luckily my work kind of freaked out with me resigning and offered me a great deal to stay a couple more months, so I had a bit of extra unplanned cash in the bank which was great for my nerves.

Marketing has never been my strong side, and I still struggle with this now. I believe that I could be making a lot more from what I already have, if only I knew how to market them better. I did release a free app to help with cross promotion and traffic generation, but I’ve never really done any proper advertising or content marketing.

2015-2016 I moved into an office space, optimized my existing apps and also creating my 4th app, called OrderlyEmails. It’s a way for merchants to improve and customise all of the emails that your Shopify store sends to customers, such as Order confirmation, Shipping notifications etc.. much like a website theme but for emails. This was also a one time purchase style app, so much more like a normal e-commerce store, than a traditional Saas app. The great part about this app is that it has so many directions I could take it, and things that could be done to help it grow. For example, it could branch out into providing Marketing style email templates as well, I could do partnerships with website theme designers to have matching email designs, which I’ve actually just started on.

2017 my biggest issue has ensuring that enough hours are left in the work day to improve and maintain the products after answering all of the customer enquiries, and prioritizing those activities in the right order. It’s a good problem to have, as the more you sell the more enquiries you get and the more new ideas. Customer service takes about half my day now, and I’ve considered outsourcing it. The reason I have not done that yet, is that it’s also my best channel for learning about improvements and ideas.

Currently I’m at $27,000 / month revenue, growing on average 5% per month. My average day is from 9am-4pm so definitely within my goals. I do struggle with the idea of it all disappearing tomorrow, which I’m sure a lot of makers do.. it has proven to be a great motivator if you don’t let it overwhelm you too much. Otherwise it would be way too easy to cut down on hours even more 😉

How much profit does your business currently generate?

I’m currently at $275,000 USD in profit, per year. This includes my salary, as for a one man company it’s all one and the same.

Shopify app revenue

What are your profit margins like?

85% – Although that is after Shopify have taken their 20% partner share, which I have no influence on.

Example:
$100 (customer pays)
– $20 (Shopify’s 20%)
– $12 ($80 – 15% expenses)
= $68 for me.

Why do you think your product has been so profitable?

Niche software that focuses on doing specific things really well. Sweating the details that other larger companies may not spend time on and really understanding where the customer is coming from and where they need to go. Using the right payment model that suits the customer has helped too, instead of just going for the default monthly subscription model.

Profit is `Revenue – Expenses`. How have you increased revenue?

Increasing and experimenting with pricing has by far been the easiest and best way to increase revenues for me. I think we often undervalue our own products, and it took me a long time to feel comfortable charging what users were actually willing to pay. Another way I’ve found to increase pricing is to actually increase expenses in the right areas. It’s much more efficient for me to pay for some software I need, instead of spending a week of my time trying to build my own custom solution. That way I have more time to focus on the things that actually increase revenue.

How have you reduced expenses?

I don’t think I have in a big way, but I’ve also never really grown them too much either. I’ve reduced expenses by using a more expensive hosting provider, such as Heroku which frees up my time and means I don’t need to pay ops engineers. Learning to do things myself, that are core to the business.

Are there any other tactics you’ve used to increase profits?

Making partnerships with other companies is proving to be a great growth opportunity for me. I’ve been lucky enough to create some good partnerships with an industry leader as the first, which has really helped open more doors due to recognition.

Business is hard (even for profitable companies)! What are you struggling with now?

Time and marketing! On one hand I don’t want to hire because I really like not “managing” people, but on the other hand I know I could grow and market more if I did. I’ve never been great at social and content marketing, so I’d like to improve on that.

How are you planning on improving your business this year?

Partnerships, and more organic marketing.. also finishing my general affiliate program to entice more referrals

What obstacles stand in your way?

Time, and knowing where to start. Shopify is also a unique challenge when it comes to affiliate tracking, so I cannot use an off-the-shelf system to track and payout.

Would you ever sell your business? Why or why not?

Yes, at the right price and more importantly the right time. I don’t want to part with an app that still has a long way to go in what I beleive to be it’s full potential. For example my email app is doing $10,000/ month now, and I feel with a few more features and extra designs it could be doing twice that.. and I’d love to see if I could get it there first. I was close to selling one of them recently when I was approached about it. It didn’t turn out this time, but definitely something that I’m always open to.

What do you think aspiring product people get wrong about building profitable products?

I think a lot of people expect them to be overnight successes, and don’t realise that it most often takes years to grow and develop a product until it generates a liveable income.. at least when bootstrapping. So they give up too soon. Of course if no users at all, then move on to a new idea, but if there is some traction and growth then be persistent and patient.

Listen to the full interview here:

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Don’t ask people what they want. Ask where they’re spending their money.

I love this quote by Jason Fried:

You can’t ask people who haven’t paid how much they’re willing to pay. The only answers that matter are dollars spent. People answer when they pay for something. That’s the only answer that really matters.So put a price on it and put it up for sale. If people buy that’s a yes. Change the price. If people buy, that’s a yes. If people stop buying, that’s a no.

You can use this approach to find new business opportunities. Ask yourself:

“Where are people already spending their money?”

For example, Eric White noticed this:

If they were already spending money on Mailchimp, they’ve got a problem they’re willing to pay to fix. Seems like a good sign?

Almost every business is spending money on email marketing. It’s one of the non-negotiables. You’d think that the space would be too crowded, but Nathan Barry’s ConvertKit has recently become wildly profitable.

How Nick Disabato built a profitable productized service

This series aims to help founders, like you, get profitable. Get all the case studies here:

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Nick Disabato’s story

In 2009, Nick launched the 18th Kickstarter ever for a book on interaction design called Cadence & Slang. It successfully raised $12,206 with 258 backers. He was blown away by the support he received.

At the time, he was working at a design agency, and the Kickstarter experience gave him confidence. He’d self-published this book, and had earned an independent income.

In 2012, he decided to start freelancing. That year, his business made $47,000 in revenue. It was a difficult time; by November he only had $21 in the bank. His business was saved by stroke of luck: in December, he was hired to redesign  Chicago Magazine.

The following year, he started looking for a sustainable source of income. “What can I offer on a monthly retainer basis?” he asked himself. After evaluating a few options, he settled on monthly A/B testing. He called it Draft Revise, and initially prices it at $650 / month. When he launched the sales page, Patrick McKenzie found it and wrote about it in his newsletter.

“My server crashed, and I sold out of spots. I’ve been sold out ever since.”

From 2013 until 2016, revenue grew from $81,000 per year to $238,000 (pretty good for a one-person shop!).

Here’s what Nick learned about building a profitable business

  • Success hinges on the relationships you build. Each of Nick’s pivotal moments involved a relationship he’d built previously. He was one of the early Kickstarter projects because he’d met the founder in college. Right after he quit his job, he met Amy Hoy, who introduced him to the bootstrapping community.  See the Harvard Research Study.
  • It’s OK to go in over your head. “Here’s a secret,” Nick says, “I’d run two A/B tests in my whole life when I launched Draft Revise. I got better at it, but I was in way over my head.”
  • Pay attention to expensive problems that businesses want to solve. You don’t want to have to educate your customer about the problem; they should already be in motion. Focus on solving an expensive struggle that clients are compelled to solve.
  • Infuse your values in your business. Nick’s business been profitable (on purpose) from day 1. Draft’s business charter prevents him from taking outside investment or being acquired. Likewise, he only works with independent companies that have not taken outside investment themselves.
  • Have a “buy out” number. “If someone wants to hire me full-time for a year, upfront, no strings attached I have a “buy out” number,” Nick says, “it takes into account the opportunity cost of a year of lost business & attention. Currently $3.5M. I say it with a straight face and people laugh, incorrectly.”

Nick’s monthly expenses

Nick tracks all of his monthly expenses in a Soulver file. It looks like this:

Nickd's monthly expensesa

Draft’s annual revenue and profits

Nick’s financial picture is interesting, because a large part of Draft’s profits become his salary.

Draft Revise annual revenue and profit

In 2012, profit margins were 3.19% ($1,500 after expenses). As revenue grew, Nick also paid himself more.

This gave him some flexibility. In 2016 he deliberately took on more client work so that he could buy a house. He made $238,000 in revenue that year, and posted a loss only because he decided to withdraw $100,000 for his downpayment.

His plan for 2017 is to work less. He’s expecting to have $180,000 in revenue, $93,924 in expenses, and earn a profit of $86,076. That should give him a healthy profit margin of 47.82%.

2012 2013 2014 2015 2016 2017
Revenue $47,000 $81,000 $128,000 $160,000 $238,000 $180,000
Expenses $45,500 $71,000 $100,000 $140,000 $270,000 $93,924
Profit $1,500 $10,000 $28,000 $20,000 -$32,000 $86,076
Profit % 3.19% 12.35% 21.88% 12.50% -13.45% 47.82%

Actions steps for you

  • Being healthy is the best investment you can make in your business. “Sleep, improve your diet, exercise, drink a lot less alcohol, meditate and journal,” Nick says. (Watch the clip)
  • Track all of your expenses. Nick is a one-person shop, and he tracks all of his expenses, from the cost of his passport to his mortgage. This gives him a clear picture of his break-even point.
  • Raise your prices. Nick initially launched Draft Revise as a productized service that cost $1,950 / quarter. After the initial spots sold out, he realized he was very underpriced.
  • Keep 6 months living expenses in the bank. Nick’s goal has always been to have 6 months worth of cash in his bank account. It’s dipped down a few times, like when he bought a house, but he always tries to build it back up to at least 6 months.

The full transcript is coming soon! In the meantime, watch the interview with Nick here:

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Brennan Dunn on increasing profits for digital products

Everyone wants to talk about revenue. But what about profits? How much cash are these businesses actually earning?

What’s the difference between a founder who is mega-profitable, and an owner who’s just making a living? How can a SaaS, software, or digital product company go beyond breakeven?​

These are the questions we’ll be examining in this series. Get all the case studies here:

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Brennan Dunn’s story

Brennan was running a multi-million dollar agency when he decided to build his first software product. He launched Planscope, a project management tool, in 2012. It was a hard grind:

I was pretty disappointed with the income. It took over a year and a lot of effort for it to make any measurable impact on my finances. The problem was that I could make in a few hours of consulting what Planscope brought in each month.

Then something happened. Planscope customers started asking him questions about how to charge higher freelancing rates. After responding hundreds of times, he decided to just write a book on it. The result was Double Your Freelancing Rate. Pre-sales for the book totalled $2,213.

Is Brennan Dunn's business profitable

Revenue for DYF took off. Getting a sale for Planscope was a lot of work. Conversely, selling a copy of the book (and then later, a course) was a lot easier, and had way fewer costs.

In 2016, he sold Planscope and decided to “double down” on Double Your Freelancing.

Here’s what Brennan learned about building profitable products

  • Talk to potential customers in-person or on the phone. Your understanding of what customers want is what will drive future profits. (Listen here)
  • It’s tough to get people to change their behavior. “It’s one thing to build software, and it’s another thing to get people to modify the way they work.” (Listen here)
  • Respond to evidence from real people. When Brennan started seeing trends in the questions people were asking him, he responded. It wasn’t about asking people what they wanted, but observing the behavior. (Listen here)
  • It’s always hard in the beginning“I pushed super hard for those pre-sales,” Brennan remembers, “MailChimp even disabled me for excessive spam. Lesson learned!” In the beginning, he had to grind to get $2,213 in pre-sales. Nowadays, making that kind of revenue seems easy for him. Just remember: it’s hard for everyone at the start.
  • Track the lifetime value of your customer. Brennan knows exactly how much a lead is worth to him, and he can segment by “what they do” (designer, developer, owner). (Listen here)
  • Evaluate your profitability per product and customer type. When Brennan launched a premium $9,000 course, he discovered that revenue was higher, but profit margins were meager (below 5%). He also knows that certain customer types are much more profitable than others. (Listen here)
  • Automation increases your profitability. In the beginning, you need to work hard. But eventually, you need to automate your process. (Listen here)

Double Your Freelancing: Revenue and profits

Brennan’s business expenses are relatively stable: about $115,000 per year. Revenue in 2015 was $566,000, and increased to $855,000 in 2016. He expects to do about $1.1 million in sales in 2017.

Brennan Dunn's product profits 2015, 2016, 2017. Get more profitable

As a one-man shop, Brennan’s profit margins are excellent:

  • 2015: 80%
  • 2016: 86%
  • 2017: 89%

(Note: these are before he pays himself disbursements, but he’s still well above the 15% profit benchmark)

Here’s what you should do next

  • If you’re starting out, create something small. “I wish I’d started with a workshop (or webinar) instead of building a SaaS app,” Brennan says.
  • Give yourself time. Brennan began by launching an ebook in 2012 (to a list of about 1,000). It sold for $29 and initially brought in $2,213. Fast forward five years, and he’s expecting to do $1 million in profit (with a list of 42,000). But that didn’t happen overnight. (Clip 1, Clip 2)
  • Listen to real human beings. “I almost gave up,” Brennan confides, “until I started noticing the support emails I was getting from Planscope customers.” He was getting questions like: “Any ideas about what I should charge?” This lead to the creation of Double Your Freelancing, which was a vastly more profitable product.
  • Double down on what works. Brennan found himself with two businesses: a SaaS and an info-product. Growth (and profits) for the SaaS were slow, so he doubled down on DYF.
  • Be realistic about your expenses. Maximize your revenue. Brennan’s company expenses are around $115,000 a year. That hasn’t changed that much. What has changed is his revenue. By keeping his costs flat, and focusing on maximizing revenue, his profit margins have increased every year.

The full transcript is coming soon! In the meantime, watch the interview with Brennan here:

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Justin Jackson’s talk at Laracon 2017

It was awesome to meet all of you at Laracon 2017 in New York City. A special thanks to Adam Wathan for introducing me to the Laravel community, and to Taylor Otwell for inviting me to speak.

Download the slides from my Laravel talk (PDF)

Download PDF

Watch the teaser video:

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MicroConf 2017 – “The Freedom Ladder” talk by Justin Jackson

I had an awesome time meeting you all. Thanks for coming to my talk on The Freedom Ladder: Achieving Financial Independence Through Products.

If you have any questions in the future, feel free to reach out at justin@megamaker.co or on Twitter: @mijustin

You can download my slides here:

Download my slides (PDF)

Watch the video:

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