Patrick McKenzie — "Leveling Up"


(This article is part of the MicroConf 2015 Recap. Want to explore more talks from the event? Go back to the Recap Hub)

Main Concept

Ship something! It doesn’t have to the best, most perfect thing ever. Get exposed to the mechanics of building something.

 Key Points

  • If your business is enabling you to live the life you want to live with your family, you win.
  • Follow the flying geese curve, you go from going from grinding in poverty to being on top of the world.
  • Founder / product / market fit is one of the best advantages you can possibly have.

Talk Recap

Patio11 at Microconf 2015

Patrick’s Background

  • “Why do I come out all the way to Vegas to give a talk from Tokyo?
  • Following a life script laid out by someone else — didn’t pick, didn’t like
    • Skeptical about ‘raging against the system’ why not follow the system?
    • Realized the position he had was ‘salaryman’, “Like murder, but marginally more scalable”
  • Started bootstrapping a few years ago, took over professional career, worked out well
  • Has had the privilege of learning a lot from other folks in the bootstrapping community — we come to MC because we’re a community of purpose
    • Diversity of skillset and goals, dedicated to helping each other acheive their goals
    • No teachers at MicroConf, no sudents. Only peers. Making wonderful lives for their families
  • Always weirded me out that we picked Vegas — least MicroConf’y city (“Like a city planned by Satan”
  • If your business is enabling you to live the life you want to live with your family, you win.

Flying Geese Curve

  • Postulated by a Japanese economist
    • Called “Flying Geese Curve” because if you draw this curve where an industry can take you, every country starts out having nothing (“Dirt Poor”)
    • How do you become a wealthy developed industry?
    • You start out where anyone can do it — the textile industry
    • The technology you need to go from a low-scale textile industry to a high-scale textile industry was proven by England in the 1700s. Ergo, just repeat, then you’ll be producing actual clothes.
    • Buuuut textiles only get you so far
  • So! You take those skills and use them to build a better industry — steel, mineral production, etc
    • Get better at making steel
    • Invest at industries that are harder to get into on the ground floor (like Automobiles)
    • First automobiles
    • …but at first they suck.
    • ……but then they kinda get good
  • And then! You take those schools and improve on them to make better tools.
    • Robotics, etc
  • Follow the flying geese curve, you go from going from griding in poverty to being on top of the world.
  • Friends — As you move up the curve, you identify that your people are too expensive to do the previous level of creation (textile) and pass it down to another country.

Flying Geeks Curve

  • Start out with absolutely nothing and grow!
    • Bingo Card Creator — got good at SEO, AdWords, built a name.
    • Kazlumeus — Blogging, building a named
    • Appointment Reminder — Started a SaaS

Don’t Make Our Mistakes

(Make Much Better Mistakes)

  • Build Portfolio Businesses
  • Listen to the presenters, learn the mistakes they made, avoid those mistakes

The Tutorial Mission: Your First Business

  • Ship it. Ship it. Ship it. Ship it. Ship it. — You won’t be known as the person who made the first thing you made.
  • Optimize for learning over perfection — “Oh yeah, I’ve been doing ‘Market Research’ for the last two years”. This doesn’t acheive your goals. Much better to say ‘I’ve got a 1/2-way decent idea’ and get it out and learn from it.
  • Start accumulating unfair advantages for later businesses — On day 1, when no one knows your name, when this business thing is a complete mystery, you’ll be like Patio11 on day 1. But as you scale up, you’ll be able to start new businesses other people can’t just start on a whim.
  • Cover “minimum viable financial goal” — Figure out your minimum necessary Cost of Living to quit the day job and accelerate.

Unfair Advantages

How do you know if you have an unfair advantage?

  • People tell you that you’re anomalously good — Make note of when folks praise you on what you’re doing.
  • Watch other people around you in the community. Note where you’re doing particularly good on something useful. — Then, swap ideas with them.
  • Use your growing understanding of your business to project what X would do in another, larger business, or a business with advantages you lack. — Think about the gains you’re able to achieve in your business and then scale those results up to their level.

The Case Against SaaS For Biz #1

  • Huge barriers to shipping + keeping it up and running — Takes several months to get minimal viable version 1.0 into the market space. Keeping it running is mission critical. (BCC: few minute downtime; AR: 3-seconds of downtime).
  • Hard to sell and market without any pre-existing foothold in industry
  • Long slow SaaS ramp of death — You won’t make money fast. You’ll make money slow.

The Guide Path To SaaS

  • Plant a flag on the market with an e-book, WordPress plugin, etc. — Builds your foothold.
  • Start collecting email addresses — Use this to launch your ‘flag’
  • Launch a productized consulting business — Then, transform to software doing the work.

We repeat this advice every year because it’s a cheat code for life / business

Typical Bootstrapped SaaS Pricing

  • $29 ~ $49 — Tier 1, some foozles
  • $99 — Tier 2, even more foozles, maybe a special feature
  • $249 — Tier 3, lots and lots of foozles

Productized Consulting Base Offering

How Patio11 would do it today. Go to previous consulting clients, offer them this. 

  • $99 a month: SaaS app to do pricing pages
  • $500/month: Savvy pricing pages as a service
    • 3 A/B tests to run a month
    • We’ll implement them
    • Nice PDF report to make you look good to boss
  • $2.5k to $10k++ a month: Chief Revenue Officer
    • I’ll own your pricing strategy and physically manage it
    • I’ll implement all your upsell/etc lifecycle emails
    • I’ll do all the analysis/reporting for management

“The Peldi Rule”: Love What You Do

Founder / product / market fit is one of the best advantages you can possibly have.

A Missed Opportunity

  • Continue serving the same market — Some people in this audience are good at doing this (Brennan, DoubleYourFreelancing.com)
  • Patrick? Not so smart. 
    • Bingo Card Creator — School Teachers!
    • Appointment Reminder — Dental Offices!
    • No overlap between audiences, market, etc.
    • Should have had a heart-to-heart and think ‘for the business that comes after this one, where do I want to be working, what makes sense for me? 
  • Layering of Consulting / Productized Consulting / Starfighter
    • Makes it incredibly easy to build your business. Go to previous customers / email list / etc, tell them about your new thing. You have trust from the people you’ve previously worked with. This is a huge unfair advantage. 

Level Up In…

  • Scale of problem you’re attacking — Something that achieves a slightly bigger impact in the world.
  • Engineering acumen brought to bear on target — Use what you’ve learned to build your new business.
  • Sales/marketing techniques — Use what you’ve learned to build your new business. Find places where you have this unfair advantage. Where people in this area just aren’t doing this thing. Find a new angle.
  • Sophistication of business / operation — You can scale from kitchen table to VA to employees to co-founders.

(n.b., Are you selling a vitamin or a painkiller?)

AR Revenue Curve Was Depressing

  • Long, slow SaaS ramp of death — AR was puttering along.
    • Did not love the business.
    • If you don’t love the business, you won’t see results.
    • Had been blogging about the business since Day 1, would have to ‘quit in public’. That fear of writing the blog post was bigger than the fear of going bankrupt.
  • Portfolio Business — Funded business via BCC
  • Appointment Reminder Started Working — this is where the business started taking off (see Stelli’s talk, soon to be live)

Deciding When It’s Time To Move On

Sold Bingo Card Creator, April 2nd

  • Business not helping you achieve goals
    • Live / Love / Learn
      • (2006) Loved teachers
        • ….then, 6 years of being the sole customer support person
      • Wasn’t learning anything new; just grinding it out.
  • You’ve stopped accumulating marginal advantages
    • If you’re thinking about this in a planned out manner, are you continuing to make forward progress in terms of skillset / material advantage / etc?
    • Could you have hit a new +10%?
    • Would you learn something new?
    • If you’ve learned everything possible, start something new
  • It’s ‘clearly time to go’
    • You’ll know when this happens.
    • Signals from life itself. You’ll know when you’re unhappy.

Options For Pruning Portfolio Projects

  • Shut It Down 
    • You owe your customers nothing.
    • If you hate doing it, shut it down.
      • If your thing (ebook business) isn’t getting you to where you want to be, take down the webpage.
      • If it’s a SaaS, say “Hey, 90 days from now, the servers are going dark. We’ll help. Sorry! It didn’t work out!”
    • That’s all you owe anyone.
    • You owe responsibility to yourself more than to your customers.
  • Put it into maintenance mode
    • Stopped doing active work on BCC, let the business just run by itself on a stable / technical / market perspective.
    • Put good people in charge of running it for you.

Anatomy of a Salable Business

  • Goldilocks zone for revenue / price
    • Might only be a few businesses that make sense to buy
    • Might not be making enough to justify the sale
  • Low ongoing time involvement from founder
    • You might not realize how much time is involved.
    • Anything you’re doing on the last day of the business is something that they’ll be doing on the first day.
    • Prepare by developing Standard Operating Procedures and outsouring.
  • Low-risk that present revenue evaporates.
    • “The Googles”
  • Growth in market
    • Will your business continue to grow?
  • Technical risk mitigated
    • The buyer might not be a technical purchase
    • You need to mitigate the technical risk

Early Decisions Make Selling Easier

  • Business Opportunity: enduring and stable/increasing
    • Don’t go after things that are faddish in nature (“Video Games”)
    • Hard to sell a video game business, you need to sell a stable business
  • Technology Stack: something simple and well understood
    • Many sources of risk; don’t put your risk-bet on the technology
    • Use off-the shelf tools
      • WordPress, etc
    • SaaS
      • Built on Rails or something that’s established
      • Something that will be around for a long time
  • Business Model: fat margins, ideally recurring revenue
  • Traffic Sources: diversity and defensible
    • You get 97% of search traffic from organic traffic
    • Someone asks ‘What do you do?”
    • You say “Oh, I’ve got this trick…”
    • Boom. Your business can vanish.
    • You want to say “We get 40% from Google SEO, 40% from AdWords, remaining 20% is a grab-bag.”
    • Defensible. If any titrate down, then it’s not a big deal.
  • Founder involvement: variable as desired
    • You want the business to be well understood, good processes in place, good people in place, and it can run on its’ own
    • or you want to be able to say “There are levers you can move to make this business better”
      • i.e., Bingo Card Creator
        • SEO, tapped out
        • Email? Haven’t done in 5 years.
        • If you want to grow this business, focus on email. Or moving to a recurring revenue model.

Pre-requisites for Sale

  • Understand your numbers cold and be able to document them all
  • Isolate assets to be sold from the rest of your business. 
    • Had a MailChimp account that was shared between 4 accounts.
    • Having to rearchitect 3 different accounts to migrate from Mailchimp to Drip
    • Problems he didn’t need.
    • BCC was on the same RackSpace account as the rest of the business, needed to migrate to a new RackSpace account. Huge technical debt.
  • Minimize founder ongoing time commitments. 
    • If you haven’t already outsourced something, outsource it now.
  • Block off a few months. 
    • Takes time to sell a business.

Should You Use A Broker?

Short answer: Yes

  • It’s stressful
    • Your broker will qualify these bozos for you, deal with stuff for you
  • Use FEI (FEInternational) for selling your business

Process and Timeline of Sales

  • Jan/Feb: Technical and organizational groundwork
  • March: Start working with broker
  • Late March: buyer identified
  • April 2nd: Contract executed
  • April 8th: Wire transfer hits!
  • April 9th: I’m freeeeeeeeeeee

Process and Timeline of Sales

  •  Gather data on everything. Answer ~100 questions.
    • Mailchimp. AdWords. Analytics. Everything.
    • What tech stack was this built on?
  • Broker prepares proespectus on the sale.
    • Document specifying what is for sale.
  • Broker locates, vets buyer. LOI signed.
  • Due diligence to verify all material facts. Answer ~10 questions.
  • Contract signed. buyer escrows.
  • Transfer domain names & accounts.
  • Escrow released after inspection period ends.
  • Aftercare for negotiated period.

Your Action Items

The Tutorial Mission: Your First Business

  • Ship it. Ship it. Ship it. Ship it. Ship it.
  • Optimize for learning over perfection.
  • Start accumulating unfair advantages for later businesses.
  • Cover “minimum viable financial goal”

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Recommended Resources

  1. Starfighters.io — Seeking players and clients, launching early may (hopefully!)
  2. Kalzumeus — Patrick’s blog
  3. Contact: patrick@kalzumeus.com or @patio11
  4. https://training.kalzumeus.com (Patrick’s mailing list)
  5. Software Conversion Optimization course upcoming — send me an email when it launches and it’s yours.

Links to Speaker’s Websites

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(This article is part of the MicroConf 2015 Recap. Want to explore more talks from the event? Go back to the Recap Hub)