Kalzumeus Podcast Episode 11: Bootstrapping vs. Raising Money

Keith and I are joined by special guest Jay Winder, CEO of MakeLeaps, in this 11th episode of the podcast.  We talk a bit about doing business in Japan, raising money vs. bootstrapping as a SaaS company, how AngelList is going to eat the world, and the usual eclectic mix of topics.

[Patrick notes: The transcript below has my commentary inserted like this, as usual.]

What you’ll learn in this podcast:

  • Why you should negotiate from a position of strength and abundance.
  • How to raise a round of funding through AngelList while not being in Silicon Valley.
  • Why AngelList Syndicates are the future of seed stage fundraising.
  • How to manage relations with investors when you have lots of them.
  • How running a bootstrapped SaaS company is different than one which has raised early investment rounds.
  • How the SaaS market is different in Japan.
  • A bit about Jason’s new project, Sales for Geeks.

A brief announcement: Keith and his co-founded Rachel launched a new product recently called Segmetrics.  It’s Baremetrics, for InfusionSoft — gives you actionable, one-look insight into which of your InfusionSoft segments (e.g. traffic sources) are producing results for your business.  If that sounds relevant, make with the clicky-clicky.

Podcast: Customer Onboarding

MP3 Download (~60 minutes, ~59.3 MB) : Right-click here and click Save As.

Podcast format: either subscribe to http://www.kalzumeus.com/category/podcasts/feed in your podcast reader of choice or you can search for Kalzumeus Podcast in the iTunes Store.

Transcript: Bootstrapping vs. Raising Money

Patrick McKenzie:  Hello, everybody. Welcome to the 11th episode of the Kalzumeus podcast. I’m Patrick McKenzie, here with my noted co‑host, Keith Perhac and our good friend, Jay Winder as CEO of MakeLeaps here in Tokyo.

Keith Perhac:  I’m Keith. Welcome to the 11th episode. I can’t believe that we got this out, literally one week after our last episode.

Patrick:  This is downright scary.

Keith:  This is scary.

Patrick:  It’s almost like we have an actual podcast.

Keith:  I don’t think so. All right. Cool. Welcome, Jay.

Jay Winder:  Thank you. Hello. I appreciate the welcome. I was looking at you guys doing a podcast behind a thick Plexiglas window and I think, “Geez, that looks really warm and cozy inside that little podcast igloo”, so thank you very much for inviting me in. It’s a pleasure to be here.

Patrick:  We’re happy to have you from outside in the cold.

Jay:  Well, we have an air‑conditioner right here.

Keith:  Hopefully you guys cannot hear, otherwise our editor is going to be very, very mad at us.

Patrick:  Very, very angry at us.

Keith:  In fact…

Jay:  Should we turn it off?

Patrick:  We were testing a little bit ago and it sounded OK.

Keith:  You couldn’t hear it.

Patrick:  Alright, so we’ll be talking about a few different things this time. Jay has a SaaS business called MakeLeaps. Why don’t you just give us a little bit of background on what that is for people to have some context, and then we’ll talk about recent MakeLeaps adventures.

Jay:  The best and shortest way to describe MakeLeaps would be a FreshBooks for Japan. It’s essentially an online platform that helps Japanese freelancers and businesses more easily create and send their invoices, whereas right now pretty much everybody in Japan uses Excel and they do it all manually, which is crazy, and we’re on a mission to fix that.

Patrick:  As of a couple months ago, you guys are funded out of a few Silicon Valley movers and shakers. You want to tell us a little bit about how that came to pass?

Jay:  Sure. Around one year ago, I had the good fortune to meet Naval from AngelList, who’s a good friend of my friend. The first time I met Naval, he asked me a series of questions about MakeLeaps because he’s interested in the Japanese startup ecosystem. I answered all of those questions and at the end of that conversation, he very generously offered to be an advisor, which was very nice.

We thanked him for that and then the next time he came to Tokyo, I got a chance to see him again. He said, “What’s happening with MakeLeaps? Where’s everything going?” I said, “Oh, it’s great. We’ve got this traction and we just hired this guy and we’ve got this partnership and this deal and blah‑blah‑blah.”

He looked at me and said, “Can I ask you a few more questions about MakeLeaps?”

I said, “Sure, of course.” For about 30 minutes, he asked me a series of about 20 rapid‑fire questions, which I found very fun. They were all on point and interesting, so I responded.

Then at the end of that conversation, he said, “Wow. That all sounds pretty interesting. If you would be open to it, I would really be interested to invest in MakeLeaps.”

Up until that point, taking funding and investment had been an amorphous idea, we’d read about it in TechCrunch, but actually having an offer from one of the top most well‑known people in Silicon valley, offered to invest in MakeLeaps, kind of like Michael Jordan saying, “Hey, would you like a game of basketball?” It’d be crazy to say no, even if you like basketball a tiny little bit.

That began a process where we started thinking deeply, myself and my co‑founder, Paul. What do we want to do with MakeLeaps? How do we want to manage it? Do we want to take on investors?

That was quite a complex discussion we had over quite a long time. The more that we thought about it, we realized, “Well, if we really want to build a big important meaningful business, it’s going to affect a lot of people in a meaningful way, funding is going to be critical” is what we ended up realising.

I realized that, the Bootstrapper method is absolutely legitimate, and we did that for four years, so, I am not detracting from that at all. That’s a great way to go, but we had a situation where we could get some well‑known people onboard our team at MakeLeaps.

We decided that, it would be a great idea. We went ahead and did the funding round of $750,000 that closed a few short months ago.

Patrick:  Some of the participants for that, were Naval, Dave McClure from 500 Startups, Hiten Shah, a few others. It’s funny, these days, there’s a mechanism called a “Syndicate” on AngelList, which might be new to some of you who are listening to this.

Typically, in the days of yore, three years ago, a funding round for seed stage investment like this would be done by some of the collection between a 5 and 10, or 5 and 20 angels. Typically the minimum for an angel investment is about $25,000, below which, it wasn’t really worth everyone’s time in putting the deal together. Between $25,000 and then, say $100,000 on the high‑end, you would put together $250,000 to $500,000 like that.

One of the emerging models on AngelList is that, various smaller angels who don’t want to do deal flow management for themselves, which means they don’t want to go out in the world finding people who are like Jay, convince them that they should be allowed to invest in the company.

They want to outsource the deal flow management to somebody else, outsource a lot of the vetting of the deal to somebody else that they trust, and be able to invest some money in the startups that person invests in.

They can follow them on AngelList, in a way that is not like following somebody on Twitter. They make an informal commitment to invest in startups that the syndicate lead invests in. Collectively, this is called a syndicate, and then, some magic happens. I am not sure what the magic is, but my understanding is that AngelList makes some sort of vehicle where the syndicate can each put money into the vehicle, or is it AngelList just brokers the arrangement and the angel invests directly in your company?

Jay:  The way that it works in practice is there’s a person that has a syndicate, like you say. There’s maybe anywhere between 2 to 100 people that are following a syndicate. Then the syndicate lead will say something like, “OK, guys. I’m going to make an investment into this company. Here’s what it looks like.” At which point, depending on Angel List settings, and I’m not sure about this, it’s either opt‑in or opt‑out.

If people want to opt into the deal, they can say, “Yep. We agree with this deal. It looks great. I’m in,” or if they want to opt out, they can say, “You know what? I’m not interested in this space” or something like that, they can opt out. With that in mind, it’s actually kind of interesting. You don’t actually know, if you’re leading a syndicate, the amount of investment money that you can get until you actually decide to lead a syndicate investment and see how many people join.

Any person that’s running a syndicate who’s fairly well known that says, “OK, we trust these guys and we want to invest into them,” that’s a very strong signal. As Patrick said, if you’ve got some spare cash sitting around from Google stock share sales or something like that, you can say, “I’ll throw in behind all these people.”

Then what actually happens is if you’re an entrepreneur on the other side, you perhaps might start to trend on Angel List. Then you start get a lot of attention and people start to follow you and people might start to say, “Hey. Can we hop on the phone for a call?” at which point you lose a tremendous amount of sleep if you’re living in the Tokyo time zone…

[laughter]

Jay:  …because they all want to call either very late at night or super‑early in the morning. You’re a bit of a zombie for a little while. Hopefully, you can close enough deals on the phone or you can get enough people interested in investing that you’re ready to go. You can pull together your funding round.

We got very lucky. We set out to raise $400,000 and in the end we ended up almost double oversubscribed at $750,000, which would not have been possible without AngelList, especially because we’re trying to do this remotely. There are already some difficulties, where somebody can’t drive from Sand Hill or wherever they happen to be living in San Francisco to come visit you guys in Japan.

That’s a little bit difficult, so there’s a little bit of extra, I would say, latitude that we have to spend a bit of extra time and effort in trying to assure people that we’re good people. Sure, we’re doing this in a foreign market, but it’s B2B SaaS. It all looks similar. The numbers are similar. The market is huge and exciting and all the rest of it. You close a syndicate deal and then what happens is there is a single line on the cap sheet in respect of that deal.

All the angels invest into a holding company and that holding company actually makes the investment into your company. You get a single wire and a single name on the cap table and that’s it. You’re done. You don’t have to chase people to sign agreements or do any of that kind of stuff. All of that is done and fully managed by AngelList, which makes having 60 investors a cakewalk.

It’s simple. All of a sudden, you get a big wire of cash and a single entry in your cap table and that’s it. You’re completely done. That was transformative for us. Moving forward it’s not going to make sense to raise money using something other than AngelList. It just makes it so easy and straightforward.

Keith:  That’s a glowing recommendation if I ever heard one.

Jay:  Yeah, it was great.

Patrick:  This is particularly true for folks who might be raising from smaller angels or angels who don’t have a strategic profile to them. For example, if you’re someone who previously has some successes as an angel or as an entrepreneur and is known to have the capability to open doors, then a startup like MakeLeaps or another startup would be crazy to not jump through any hoop you put in your way to getting a check.

Well, given that it’s a relatively reasonable process. If you require a custom document ‑‑ a custom negotiation of the terms of the agreement, as long as it’s something reasonable, there could be founder time invested into getting a $25,000 check from you.

If, on the other hand, you’re J. Random product manager from Google, you don’t particularly have any successes behind you. Your main capability of contributing to a business is the ability to contribute a check full of a meaningful amount of money, but not a gigantic amount of money, then startups, particularly startups in demand, don’t really have a lot of reasons to spend huge amounts of their time on the phone with you, when they could be spending huge amounts of the time on the phone with either a better‑known angel or with their customers or employees trying to move the business forward.

Moving the amount of pain, the transaction costs of doing business with you down opens up more deals to you, which is probably one of the reasons that AngelList is going to eat large segments of the angel fundraising market, particularly on the low or less‑established end.

Jay:  Absolutely. It’s either “click, click” and you’re done, or “click, click, phone call, send a document, get somebody to sign it. Did they sign it? Oh well, they went on a holiday for three days. Try to call them again, but they’re not around. You need that document to close your deal,” or “Click, click, you’re done.”

It’s very clear that “click, click and you’re done,” the way that AngelList has made this very possible, and simple, and easy, it’s great. I can’t recommend it enough.

Keith:  It’s also easier for the investor, as well, because you don’t have to jump through all the hoops, as well. You don’t have to vet it as well as you would if it was a one‑on‑one.

You have other people. You have that social proof working for that, as well. It’s a lot easier for people now to invest, as well as be invested in.

Patrick:  Right, and we’re not trying to convince anyone out there in podcasting land to become an angel investor because the mathematics of it are exceptionally unfavorable unless you already know what you’re doing and you have lots of money to burn. Be that as it may, even knowing that the underlying math was difficult, the actual mechanics of doing angel investing two to three years ago were a little painful.

I have two very small angel investments, and because there’s actual contractual language involved we have to run it by a lawyer. Let’s say that I spent a high portion of my very small check size on having a lawyer look over four pieces of paper and make sure that I wasn’t giving up the general store in those four pieces of paper.

That wasn’t really something that I wanted to do. It wasn’t something that the startup wanted to do.

It’s like, “OK, we’re both professionals. We both have different bases of IP, which we want to mutually know is not going to cause problems for anybody, so the lawyers will be involved.”

With AngelList, if everyone is using substantially the same paper, which has been vetted by AngelList’s presumably top‑tier, VC, yadda, yadda legal firms in San Francisco, then there’s less legal risk involved with that paperwork.

Jay:  Very true. What’s interesting about the whole process is you can choose the set of documents that you want to use.

If you’re raising, say, $400,000 on AngelList, people will see that as, “OK, they’re raising 400k, they’ve got over 50 percent committed, and they’re using, let’s say, Y Combinator SAFE documents. Oh, OK, that’s a very clear, very easy to understand structure. It all makes sense.”

There are all kinds of different SAFE documents, so you can pick the kind that you want, and say, “OK, here are the base default documents that we’re asking everybody to sign. That makes things easier, as well. When we did our round we had an investor or two say, “Listen, the terms are good, but we’d like this favorable term,” or something like that.

When you’re doing an AngelList syndicate and you’re already almost double overcommitted, it becomes very easy to say, “OK, we appreciate that you’d like to be involved. You want this favorable term, however, we’re already double overcommitted and everyone has signed documents that do not include this favorable term. If you’d really like to be involved we’d love to have you involved, but the documents are the documents.”

It becomes very easy and straightforward to say that. Negotiation becomes very simple because everyone signs the same documents, and away you go.

Patrick:  What Jay’s saying about favorable terms is important. Traditionally in angel investing there is a few axes that the deal can move along.

One is fairly simple, “What’s the price this deal is being done at?” is something, which is fairly uncomplicated, which has not always been true.

You can imagine, using very simplified math, if I’m willing to buy 10 percent of the company for $10,000 that puts the value of the company at $100,000, which is much lower than any company would actually be valued at, but simplified math.

Those two numbers, which sum up the price of deal, are one way to evaluate the deal. There’s other terms that might be involved with exactly how the math works out in the event of an acquisition, or a down round, or various other things in the company, like, say, whether you get liquidation preference.

A liquidation preference is typically in the interest of the investors, not really in the interests of the firm. Certain liquidation preferences are borderline abusive.

Which doesn’t mean that they were never signed.  A few years ago there was not the understanding in the entrepreneur community that a 3X liquidation preference is not a market term.

Also, supply and demand. People were saying, “I will only give you my money if you include a 3X liquidation preference.”

Like Jay said, if you’re oversubscribed and the funding round is happening with or without someone’s particular $25,000 check, you can say, “Look, the term that we’ve negotiated with everyone is,” for the sake of discussion purposes, “a 1X liquidation preference, ” or “no liquidation preference, and that’s kind of the deal. You can choose to do this deal or not do this deal, but we’re not going to negotiate consequential terms like that with you.”

Jay:  The way that we ended up saying it was, “Listen, for us it’s very important to keep good relationships with all of our investors. If they found out later that one investor got preferential terms over everybody else, then that’s kind of a big, serious issue.”

There was a point that I needed to make that was fairly important, and that was the way that we ended up responding to people who asked for preferential terms. “Listen, we’d love to have you involved in this, but we don’t want to make a situation where the other investors feel like they got a bad deal or any one particular person out of 20, 30, 40, 50 people didn’t get that same deal.

“In the interests of keeping good relations between MakeLeaps and all of our investors, we’d really love you to sign the standard documents. That’s very simple, and easy, and then you can be involved, and that’d be great. If that’s difficult for you, completely understand. No problem at all. Please let me know what you’d like to do,” is the way that we handled that.

That was very smooth, and successful, and an easy way to explain what we were doing and why without treading on anyone toes.

Patrick:  This is, incidentally, something which is useful, not just in negotiating investment, but in negotiating all sorts of contracts. It’s something that your vendors will occasionally do to you.

A, if you’re selling, say, SaaS where there is an actual, physical contract in play, and it isn’t the standard contract of adhesion ‑‑ presuming you’re selling on the several thousand dollars of services every year [inaudible 17:35] companies ‑‑ you should probably have a template agreement, which you give to all of your customers.

Your first negotiating position can always be, “Well, our standard offer is…” blah. If they say, “Well, we would really prefer….” some term in there, “…which is more favorable to us than what you have right now,” you can say, “Well, this is the standard thing we offer to all of the customers at the level of service which you’re currently willing to sign for.”

“If you want to upgrade to our super‑duper platinum enterprise thing, we could discuss individualized contractual language with you. But, at the $1,000‑a‑month level of service you’re at, the $2,000‑a‑month level of service, we really encourage the use of our standard terms.”

Maybe you win that deal, maybe you don’t. That’s a negotiating tactic that you can do, which is fairly low‑risk.

Jay:  Exactly. If you’re speaking from a position of strength where you have other customers signed up to that same deal, you don’t need that deal to make your rent payment, or something like that, then it’s very easy to do.

Say, “Listen, here’s the deal that’s available right now. If you can sign it, great, if not, no problem. Best of luck, and hope to run into you again in the future,” is a very strong negotiating position to be taking.

Patrick:  I had this once for Appointment Reminder, where I’m trying to get business associates agreements, a particular type of paperwork, signed between Appointment Reminder and all of our medical customers. Many of them had already signed it, but some of them were waiting on it.

I have gone out to the folks who were still on the not signed state and said, “Look, we have a standard BAA ready. I’ve prepared it for your company. Please sign it immediately.”

Some of them are saying, “Well, we have to run this by process A, process B, and process C.” Most of these are not large accounts.

My position has been, “You have neglected signing this contract for a while, which puts us both in technical violation of some regulations, so this really needs to get done this week, rather than being done after the lawyers get through with it. Our current documents work. We know they work. We’d highly encourage you to sign the correct document.”

Keith:  What I find a lot, especially in consulting, is what you said Jay. It’s talking from a position of confidence, and power, and “OK, I’m going to be able to make my rent this week, do I really need this contract if they’re asking for all this stuff?”

What I’ve really found is that the more concessions you make, the lower your status becomes, the more power the client has, and the more things that they’re going to demand of you. In many cases, not all of them.

I think always working from a position of power, and from a position of, “OK, this is standard. This is the way we do things,” and, like Patrick said, “If you want extra things, it’s going to cost this much for adding that on.”

What a lot of people don’t realize, negotiation is a two‑way street. It’s not someone telling you what you’re going to do. You need to work out what’s beneficial for both of you, so that you’re both on the equal footing.

Patrick:  The magic words for negotiation are “mutually beneficial agreement.”

Keith:  Exactly.

Patrick:  Like Keith was saying, sometimes people who are maybe a little closer to us in mindset hear the word “power” and they get a little bit scared about it. Maybe we could think of it less of it being a power relationship and more about you having a mentality where, “This is one deal out of a universe of many abundant deals that are going to happen over the course of your business career.”

Given that, you do not need this deal to close. You’re in a position to hold out for terms on the deal that make sense to your business and to say, “OK, if the terms of the deal that are being offered right now don’t make sense for the business.” Then we will shake hands, we’ll part as friends, and maybe we’ll do business in the future, but not under terms which don’t make sense for me in the present moment.

Jay:  Of course, the classic negotiating idiom is two people want an orange. One person wants the skin of the orange, and one person wants the inside of the orange.

[Patrick notes: There are many SaaS negotiations like this, where e.g. the buyer sincerely wants the software to be maintained and the SaaS company sincerely wants thousands of dollars, and neither realizes that the other would grant that request in a heartbeat rather than it being a key point of contention.]

Then somebody cuts it in half and says, “OK, you both get half,” where both people could get 100 percent of exactly what they want if they talk about it a bit more, and understand each other’s goals, and what they’re trying to do in trying to divide an orange.

“Just buy two oranges,” is what I think actually listening to that idiom again.

[laughter]

Jay:  From that position, I think it’s always good to understand your negotiating position against somebody else’s, but let’s not get too far into negotiating theory and all that kind of stuff, though it’s interesting.

Patrick:  One thing I want to ask is you’re a Japanese company. You’re completely founded in Japan.

You’ve been running in Japan. You’re towards the Japanese market. Why Silicon Valley for funding?

Jay:  Good question. I suppose the best answer is because Silicon Valley came calling. Naval from Silicon Valley came over, got to know us, met us, found out a lot of information about us, and offered to invest.

From that perspective, we could have gone out and aggressively looked for Japanese angels and done an angel round that way. However, the Japanese angel ecosystem is not one percent of what it is in Silicon Valley.

I recently had a trip to San Francisco and I checked into my Airbnb. I walked outside and literally ran into a MakeLeap investor, completely randomly on the street.

[laughter]

Jay:  I’d only actually met him via video chat. We had two video chats.

He walked past me, and I was like, “Oh, man, I’m pretty sure that’s Tom.” But I was like, “Do I go over and accost him, and say, ‘Hey, do you know who I am?!'”

[laughter]

Jay:  Of course, that’s what I did. I’m Australian. I can’t help it.

I went over, and I said, “Hey, do you know who I am?” and of course he responded as if he was about to be mugged. He took a step back, and I was like, “No, no, no. I’m Jay from MakeLeaps.”

He’s like, “Jay.” I’m like, “Yeah, Tom.” He was like, “Ahh.”

That is the sort of thing that you can experience in Silicon Valley. [Patrick notes: People have come up to me on the street in Silicon Valley and asked “Excuse me — are you patio11?!”  Craziness.] If you walk outside in Tokyo, you will have to throw a lot of rocks before you hit an investor, [laughs] or an angel investor. It’s not so common here.

As Dave McClure says, “Angel investors are the limiting factor to any startup ecosystem,” and I agree with that. The value that you get from an experienced angel investor to give you advice, and capital, and point you in the right direction is really super‑invaluable.

We found that, once we did the syndicate round through AngelList, a lot of people became interested in Japan and the Japanese market, as well they should. Japan is still 15 percent of the entire world’s GDP.

It’s still the third largest economy in the world, full of affluent businesses and consumers. It’s a really exciting space, so people see this opportunity, and it’s rare that a company, especially run by foreigners, is aggressively focusing on focusing on and targeting the Japanese market.

[Patrick notes: I am perennially annoyed when people — inside and outside of our industry — treat Japan like its an also-ran whose time has faded, or are unaccountably surprised when Japan proves to have a lot of money.  One common article in the business press about e.g. iPhone penetration rates could be titled World’s Third Largest Economy Discovered To Contain Money.]

I guess, because of that, we also got a little bit of interest from people who’ve always been interested in Japan and wanted to find a way to get into Japan a bit more. We became that opportunity for them.

Patrick:  The understanding of investing investors, VCs, angels, service providing firms, companies, entrepreneurs, et cetera, our ecosystem is really important because all these things are interconnected.

For example, not only does Japan have fairly few angels who have operating experience in technology companies, it has few enough…Technology companies in the sense that we mean the word technology companies.

There are many tech firms in Japan. Most of them are not SaaS firms. In fact, I would have difficulty naming five Japanese SaaS firms.

Jay:  It’s not a common model in Japan.

Patrick:  Not a common model yet, so there aren’t people who have successful exits at these firms, who then turn into angels and start giving money to the next generation of entrepreneurs. Even though that’s the probably the same generation of the actual people. There’s not the sort of established best practices here for people who can….

There’s understanding in the market in Silicon Valley that a SaaS firm that has a particular metrics ‑‑ “A churn rate of two percent is really, really good amongst most SaaS,” for example. That there are probably on the order of 20,000 people in San Francisco who could tell you that off the top of their head, where in Japan you could probably go to a lot of professional angel investors here and ask them to define churn rate and have them be unable to answer that question.

Jay:  I agree with that. Yes, that’s true.

Patrick:  The three of us all have high hopes for Japan over the next short period and in the long‑run on both having successful exits, having this information percolate through the various channels, both Japanese and Japan‑resident foreigners, and hopefully having the market mature a little bit more here.

Keith:  I’m the only one in the room who doesn’t live in Tokyo.

Jay:  We’re working on that.

Patrick:  We’re working on that.

Jay:  I got one of you guys to come to Tokyo.

[laughter]

Jay:  It’s just a matter of time, Keith.

Keith:  Yeah, I’m number two, right?

[laughter]

Patrick:  It’s true. I’m in Tokyo largely because Jason is here. He and I have been good friends for the last four years.

Keith:  Also, it’s Tokyo, so it does have a lot of benefits over Ogaki

Patrick:  Tokyo is not Tokyo for everybody, although Tokyo is Tokyo for me now, darn it.

[laughter]

Patrick:  Darn it, Jason, you were right.

Jay:  That’s deep. That’s deep, Patrick.

That’s true. I’m so glad you think that.

Keith:  I think you need another drink.

[laughter]

Keith:  I did want to ask, me being not in Tokyo, not as much in the scene, when I think of a Japanese startup, what I’m really thinking of, and what I see a lot of, are Japanese megacorps who have that SaaS division.  [Patrick notes: Many Japanese companies have an empire-building complex.  In the US, Salesforce has essentially one product.  Dropbox has essentially one product.  Basecamp has essentially one product.  Their Japanese analogues own domain registrars, web development agencies, and — in many cases — restaurants or hotels.  I kid you not.]

I’m thinking of a lot of companies that…like Recruit. Recruit has a ton of SaaS companies, divisions.

Jay:  “Intra‑preneurs.”

Keith:  Exactly, and they’re very different than a bootstrap or a SaaS that’s going to be invested in because they’re owned by a giant, multibillion dollar company, right?

Jay:  Right.

Keith:  It really changes the landscape, so there are fewer investors. Companies do not buy SaaS here like they do in the States.

Jay:  Yes, there’s definitely a lot less exits and acquisitions in Tokyo, much to the chagrin of all of the angel investors, especially foreign angel investors.

You will see a company like Recruit say, “OK, we’ve identified a need in this market. Let us build a solution for that market, rather than acquire the established current leader of that market that’s going really, really well.

“Then we’ll put $20 million behind their marketing campaign and, boom, now we’re number two,” or three, or one, depending on the market and the company, which is not great. Then again, you don’t necessarily want to look towards giant companies in Japan to really support the startup ecosystem.

Keith:  Not at all.

Jay:  It’s not a good strategy.

Keith:  I work with a lot of marketing companies, especially in [inaudible 28:35] area. For the last four years, I’ve been really pushing for A/B testing, and analytic testing, and stuff for marketing tools in Japan.

I was talking to, literally, the largest digital marketing firm in Japan. I was like, “Yeah, you know they have all these great tools, Visual Website Optimizer, Optimizely, all these things, Crazy Egg, that you can use to test.”

They’re like, “Yeah, we know. We’re really pushing hard to create our own platform to help our customers.’

I’m like, “Why don’t you just help your customers by…”

Jay:  “Introducing a tremendously successful thing that already works right now?”

Keith:  Yeah, it’s like, “Why do you want to build…?” I understand why they want to build the competition, but it’s like, “You could be helping them now and build that on the side.”

It’s like, “We’re not going to touch A/B testing, we’re not going to touch marketing, until we build this tool.”

It’s still not built. That’s four years ago.

Jay:  Sure, of course. Of course, yeah.

Keith:  That’s what happens, so now they’re late to market, and…

Jay:  Of course. People underestimate complexity in software endemically, especially in Japan. It’s like, “Oh, it’s software. Just somebody build it. Easy, done.”

Especially for invoicing. A lot of people will have their own solutions, or a lot of people will be considering, “OK, do we go with MakeLeaps or do we build our own solution?”

[Patrick notes: The build-versus-buy decision for anything at a SaaS company which isn’t something you actually sell should come down to “Can I do this before lunch?”  If yes, build.  If not, buy or adopt OSS.]

The way that I look at this is very similar to, let’s say, an infrastructure question where somebody says, “OK, well, Gmail looks pretty good with your 500 of the most qualified engineers on planet Earth 100 percent focused on this 24 hours a day, but I really want to be able to control my own infrastructure.”

It’s like, “OK, so what would you like to do?” It’s like, “Well, instead of using an established platform run by literally the smartest people on Earth, that are qualified to do this exact kind of thing, I want my own server.”

It’s like, “Great, so when there’s a problem at 2:00 AM, 500 of the smartest people on Earth are not focused on your problem.”

[laughter]

Jay:  “They’re eating free lunch because today’s Mexican day at the Googleplex. That’s great for them, but you’re screwed because your email server’s offline for four days and your business stops. It makes obvious sense to start…”

Keith:  Japan has a huge thing about “not built here.” The thing is, we have a ton of smart people, and we have a ton of smart people who love solving hard problems.

They love solving hard problems, and that’s not a bad thing at all. It’s a great thing, especially for new IT companies in Japan.

The problem is that a lot of people would rather be solving those problems than using a solution off the shelf that solves the issue, that solves the business need, right?

Jay:  Right.

Patrick:  I find, in dealing with larger Japanese companies, that when they’ve identified an intrapreneur and said that, “OK, this person has put in 20 years at the company, they’re a known quantity. We’re going to stake a few million dollars of the budget to build a competitor to Optimizely or Visual Website Optimizer.”

They don’t think of what Optimizely and Visual Website Optimizer were when they started, something put together by one person or a very small team, thrown together in six weeks, and then exposed to the market for feedback.

They think, “No, no. We’re going to try to escape to where they are today,” and with several tens of person‑years of engineering effort involved.

“OK, well, if it takes 50 person‑years of engineering effort to get to where this is today, that’s all right. We will hire 25 engineers, and we’re going to put them on a project for two years.

“In two years from now, we will be where Optimizely is in 2015.

Jay: “We will release our unmarketable product.”

[laughter]

Patrick:  Aspirationally in 2017, they’ll be almost where Optimizely is in 2015 as experienced by someone who doesn’t really understand the product because they never actually used it in anger.

Keith:  I think a lot of people are listening right now are like, “Oh, no. It’s not as bad as you say.” I have had literary three Japanese clients last year that this was exactly their problem. They would not MVP it. The contract was for an MVP. We worked out a thing.

It’s like, “Take this to your client. Start selling it and then we’ll start building the next one.”

They’re like, “No. No. We have to have all the features. It has to be complete. It has to have the bells and whistles, invoicing and all this stuff before we even show it to our potential customers.”

Jay:  Here’s an interesting theory on this that I heard recently which I kind of agreed with and I think it’s fascinating.  Typically, Japanese companies and people approach software the same way as they have successfully in the past approached hardware.

Keith:  We’re a hardware country.

Jay:  Exactly. You can’t show someone hardware that’s 20 percent complete because that’s zero percent complete. Hardware is binary. It works or it does not work for its intended purpose. People have tried to apply that same idea to software and it doesn’t work in 2015 now. I almost said ’14 but it’s ’15 now. It makes sense to roll out something that works to fulfill the purpose that it’s built for and then you iterate from there just like software.

Keith:  There are two comments I want to make. The first one is that there’s this great Dilbert cartoon where the boss is saying, “Measure twice, cut once.” Dilbert’s response, “Well, when thinking measured is infinite and the cost of cutting is zero, it makes more sense to measure once, cut once and then iterate quickly.” It doesn’t work with hardware.

I keep telling this to all my American friends or my western friends in general. They’re like, “Oh, Japanese IT, software must be so amazing.” I’m like, “No, it’s not.”

You think Japan, you think electronics. That’s true. Electronics are not software. Electronics are hardware. You look at all the hardware, all the electronics that come out of Japan that have been amazing and they’re all hardware based, the Walkman, the CD, the CD‑ROM…

[crosstalk]

Jay:  …PlayStation.

Keith:  PlayStation. Oh, my god. PlayStation.

[laughter]

Keith:  Word processors, the toilets. It’s all hardware.

Jay:  Magic toilet. Oh, god. I love my toilet.

[laughter]

Keith:  It’s all hardware.

Jay:  That’s very true.

Keith:  The software in Japan…You look even at a simple website, it’s horrible.

Patrick:  With exceptions for maybe embedded programming and video games.

Keith:  That’s about it. This is interesting. We built an OS back in, I think, ’85, I want to say, that is the kernel level OS for pretty much 90 percent of ATMs in the world, but it’s so low level. There’s no user interface. There’s no nothing. It’s built on top of…We built tools. We’ve built hardware. We built things.

Jay:  When you say “we'” you’re referring to Japan, which is interesting.

Keith:  I’ve been here for 12 years. Almost my entire business career has been in Japan. I worked at an internship, then I worked at a startup job during my college years in America, and then I moved out here.

[Patrick notes: Keith cofounded an RPG company.  His comment on that: “Want to know how to make a small fortune in RPGs?  Start with a large one!”  It’s a horrible, horrible business to be in.]

Jay:  Your formative years in Japan.

Keith:  I know. I wonder if it’s hurt me. People tell me I have a very different thinking about business than western…I like it. I think it’s a good way of thinking.

Jay:  We all bring our own unique experiences to our work in all of this in much the same way. I came to Japan when I was 19 to originally study martial arts. Now, I’m running a SaaS business. Japan has been an interesting country for us both to grow in because you’ve been here for 12…?

Keith:  12 years.

Jay:  How old were you when you first came to Japan originally?

Keith:  I was at 22.

Jay:  Interesting. How about you, Patrick? You’ve been in Japan also for a long time.

Patrick:  Yup. About 10 years and change now. I think I came out three months after university ended. I’ve been here, essentially, for the duration ever since. All of us have careers has been shaped by our time in Japanese organizations or in foreign organizations that were operating in Japan.

It’s a pretty fair statement to say that if you took a look at the a day in the life of one of our businesses, it would not exactly look like it would if we had grown up in Tulsa, Brisbane or yada, yada and have the business grow up with us there.

Jay:  That’s true.

Patrick:  Or San Francisco.

Jay:  One thing that kind of blew my mind was I had to return to Australia for a five‑month period. This was maybe coming back like seven or eight years. I had to run a business from Australia and I had to do some business in Australia. What struck me was how simple everything was. It was so straightforward.

Keith:  [laughs]

Jay:  I needed to do something. I make a phone call and I have the thing that I need. I needed a contract. It’s like boom. “Here’s what we want to do.” It’s like, “All right. We’ll sign here and…”

[crosstalk]

Keith:  No huge back and forth and all that.

Jay:  It’s like, “What the hell is this? I have like two things to get done today. It’s 10 AM and I’ve done three things now.” It kind of blew my mind.

Keith:  I had a client who would not discuss anything over the phone or email. It had to be in person.

Jay:  That sucks.

Keith:  We cannot come to an agreement on things except by meeting and talking. There’s no way to come to an agreement over email or a phone call.

Jay:  That the magic of SaaS business.

Keith:  [laughs]

Jay:  When every single of your customers is paying you $20 a month and somebody says something like that to you, you can…

Keith:  Delete the account.

Jay:  Exactly. You know what? That sounds great. I’d love to spend the next six months talking about your $20 a month account, but no. [chuckles] No. No. No. No.

Running a Low-touch SaaS Company In Japan

Patrick:  That’s an interesting segue. Like we said earlier, there’s very few SaaS companies in Japan operating at any sort of scale. Most of them that are US transplant like Salesforce does very, very good numbers here. Many US enterprise companies do good numbers by merging the traditional enterprise sales culture of the US with the stuff that works in Japanese market.

On the low touch end of things, there’s not that much. What have you done with MakeLeaps that’s been successful with getting thousands of paying customers on the lower touch end of things?

Jay:  Well, one thing that’s kind of interesting in Japan, I would say, is an incredibly high level of customer support. In Japan, it’s table stakes. That does not set you apart from any of the other companies in Japan that also have an incredibly high level of support.

Patrick:  Can I jump in with an anecdote there that happened to me today? I go to a hair salon. I’ve been there maybe twice since moving to Tokyo. The young lady who cut my hair both times is moving to a different branch of the same hair salon in Tokyo.

She sent me a two‑page, honest to God, handwritten letter thanking me for coming in, visiting her twice and getting my hair cut. Giving instructions that I can give the next person that cuts my hair and directions to the new hair salon where I can find her if I want to travel 15 minutes out of the way to get my haircut.

I will be getting on that train to get my haircut, obviously.

You can imagine this is somebody whose per-visit value is what, 50/ 60 dollars for a salon haircut here. That’s a level of care that most SaaS companies that have account values the $5,000 a year range do not send handwritten letters to their customers saying, “Hey, we’re just dropping you a line because we like you.”

Keith:  If you do want to send them, I recommend MailLift.

Patrick:  MailLift?

Keith:  MailLift is a handwritten letter by API.

Jay:  Does it work in Japanese?

Keith:  It does not work in Japanese, but a great SaaS idea for anyone who wants to start a handwritten API.

Jay:  That’s a good point. There’s actually a bit of a problem in Japan right now, I think, where older workers are not able to assimilate into a lot of the newer roles that are being created as certain sections of industry are phased out.

Something like that would actually be interesting idea to look after the rapidly growing section of Japan, which are the older seniors. As we all very likely know, recently, adult diapers finally began to outsell baby diapers in Japan, which is terrifying.

[laughter]

Keith:  It’s only going to get worse.

Jay:  That’s very true. That’s only the start of the trend. There are a lot of potential business opportunities for older people in Japan for sure.

Keith:  I think it’s interesting though. I’ve wondered about doing a MailLift version in Japan. The thing that convinced me against it was that why would a company not get their OLs or their, I guess, window watcher is the best English term for madogiwa. Why would they not get them to do it?

Patrick:  Well, there’s actually companies…They don’t have the API piece. API piece is what scares them because you would have to convince companies on integrating an API to get business, which is not something many Japanese companies are very keen on.

Jay:  Considering that they don’t understand the word API. [chuckles]

Keith:  You could say integrates with Salesforce.

Patrick:  There are even at least five of these in Ogaki where the company is typically a printing shop or something where they have the traditional mass-scalable printing equipment there.

They also have, essentially, little ladies who will handwrite documents that you take to them with the idea being that certain classes of documents in Japan can’t really be printed and still have the kind of heft to them, personal letters, certain forms of certificates and whatnot. These require a bit of skill with Japanese calligraphy, which the little old ladies have. If you don’t, if you are the poor, semi‑illiterate graduate of the modern Japanese educational system [Patrick notes: sarcasm tags] who can only type, then you’d go and pay a little lady $20 a page to handwrite your customer facing documents.

Jay:  Very true. That’s a good point, but the other thing that I find a little bit concerning and perhaps another reason to not start this one particular business is sometimes, in Japan, the act of doing something because it is time consuming, ridiculous…

[crosstalk]

Keith:  Don’t even get me started on that.

Jay:  …and all the rest of it. The act of doing that is what’s valuable. If you were to outsource that to somebody else for $20 a page, that act, essentially, becomes meaningless. It’s a concern that I will have.

Keith:  We talked a little about this in the last podcast where we were talking about getting the busy work done feels good. It’s an extension of that where taking the time, putting the effort even though it’s not what is the best for you or the company, it feels good and it feels right.

Patrick:  Also, seen from the perspective of the customer, I think Jay is right. That sometimes the conspicuous expenditure of resources as a way to signal commitment, that’s something you see in all societies. There are rituals for it everywhere. It something that Japan embraces a lot.

Jay:  Very much so.

Patrick:  For example, in Japanese politics, if the ruling parties is having difficulties, they send out the equivalent of US congressmen to stand at stations in Tokyo outside of the gate. They get on a soapbox and say, “This is the Liberal Democratic Party. Please support us. We want to work together for a bright vision of Japan’s future. This is the Liberal Democratic Party. Please support us.” The person is basically on loop for three hours.

Keith:  I do work with political candidates as well for marketing and stuff. They actually have people whose job is to repeat a speech on a megaphone as they drive around the city for eight hours a day.

Jay:  This is one of the areas where I take issue with Japan. I love everything about Japan. I love the people, the food. Everything about it is great. Noise pollution laws, where are you on this one Japan?

Keith:  [laughs]

Jay:  What the hell is going on? I say this without doing any research, the only civilized country that has zero noise pollution laws.

Keith:  We do have noise pollution laws.

Jay:  Really?

Keith:  Oh, yeah.

Jay:  When you say “we do,” you mean Japan.

Keith:  Japan has noise pollution laws. I looked this up because I have a noisy neighbor. I think it’s 80 decibels or something like that. It’s ignored for many, many things.

Jay:  I see. Keith, as difficult as I’m sure your situation is with your noisy neighbor, I’m a little more concerned about the people who are driving around with megaphones on Sunday morning!

Keith:  No. It’s horrible.

Jay:  For me as well. I’m a foreigner so therefore I cannot vote in Japan. However, if there was a candidate that said, “You know what? I’m against noise pollution. I’m going to make noise pollution laws in Japan.”

I would totally support them even though that support would be meaningless. The problem is that person could never be elected because he could never announce his platform to all the people to put him to be potentially elected.

Keith:  It’s going to change because this was the first year. This last election was the first year. I don’t want to get too much in the politics so let’s kind of cut it.

Jay:  We’re leaving out sex and religion. Let’s go into politics. Go for it.

Keith:  This is the first year they could do commercials. If you went on YouTube during elections, there were tons of political commercials. For the first year they’re actually allowed to do social media.  They were allowed to do blogs before but they had to actually write them themselves. You could not hire a marketing firm to do it.

Jay:  For $20 a page. [chuckles]

Keith:  You could have a marketing firm tell you what to do and then you do it but you had to actually physically do it. Those laws are changing. I helped a political candidate. I’ll be helping another one with their social media platform this coming election in…When is it April or whenever.

Patrick:  That’s probably something to nail down prior to taking politicians on as clients.

Keith:  There are a lot of business opportunities in Japan. In Ogaki, there’s very little. It’s pro bono. This is totally a, “Hey, you’re a friend of my wife. We hang out. I’d love to help you out. Let’s do some social marketing for you kind of thing.”

Patrick:  That makes sense.

Keith:  I haven’t done Abe’s — the Prime Minister’s — marketing campaign.

Patrick:  You would probably have to know when the election is if you’d be doing that.

Keith:  There’s snap elections. You don’t know.

Patrick:  That’s right!  We could schedule elections like a week from now.

Keith:  They did do that.

The Difference In Bootstrapping And The Venture Track

Keith:  We are kind of getting long on time. I do want to be conscious of everyone’s listening time because we have had complaints that three hours is a long time for a podcast. had always been bootstraped and it was a big decision for you to take funding. How has taking funding change the way you’re doing business from being bootstrapped?

Keep in mind people who are listening. This is not like, “Oh, I got $5 million of funding.” It was a sizeable funding amount but it’s not like you’re going off and buying Lamborghinis tomorrow.

Jay:  If I could find a Lamborghini that I could buy a number of without causing problems for my bootstrap, then I’d consider that. It’s $750,000 of funding that we have to use in a really good way to either, I suppose, build in the features set that is very compelling and that enables us to get to the next level of the business.

We have to use that funding to, essentially, get us to a point where we’re totally happy and ready to go out and do a Series A funding round, which we’re on track to do within three to six months from now depending on how it all goes.

Your question to how did the tenor of the business or how did the atmosphere change before funding and after funding is a really important one and a good one. It’s tremendously important to have good mentors because I have a lot of very dumb questions that I needed answered. “Well, if I sign this, does that mean that I don’t run the company anymore?” Kind of level of questions like that.

Of course, I’ve done a lot of reading. [Patrick notes: Jay recommends Venture Hacks and pg’s blog on this topic.]  I’ve done a lot of learning and I’ve gotten a lot of advice from people. When you do funding, it comes down to two things, economics and control. The extent to which you understand both of those is very critical when it comes to negotiating those kinds of deals.

For me, I was more concerned actually about the staff and how MakeLeaps staff would feel about…Suddenly, we have a lot of investors because that’s kind of confusing. They would ask all the questions that I needed to ask to understand really what was going on and how it was going to affect things.

I made sure to talk to everybody and say, “Listen, we’ve done very well up until this point. We’ve managed to get many, many users, many, many customers. It’s all very exciting. We’ve come to the point where people are interested to invest money into us.

At this point, you have to know that I’m not getting to let some person who could be destructive or cause problems for MakeLeaps into an area where they could potentially cause problems for us. We’ve been successful up until this point by doing what we’ve done. It’s not in anybody’s interest for us to radically change things like completely different in a crazy way when we’ve achieved really great growth up until this point.

For me, it was critical to, number one, understand the impact of investors coming into MakeLeaps. What would they expect? How they could offer value and how they could help us get into the next level? It’s important for the MakeLeaps staff to understand that it’s not going to change the tenor of the business.

In fact, if it has changed things in a very serious way, that’s my fault as CEO. I haven’t done my job well enough.

Number one, I want to find the right people. Number two, I want to explain the process and how we’re going to do it. Of course, we have the MakeLeaps vision — where we want to go and how we want to get there. That needs to be clearly communicated to both staff and investors.

One of the things that I’ve learned is…Well, there’s actually a great film. I think it’s called “The Watchmen.” There’s a particular character in that film. His name is Rorschach. He’s like this crazy guy. He gets caught and sent to jail.

This sounds like a sidetrack, but it gets really relevant in a moment.

Keith:  [laughs]

Jay:  Essentially, he ends up having to go to jail. In the jail, there are many of the criminals that he himself put into the jail. He’s standing there and they can’t wait to get their hands on him, beat him to death and all that kind of stuff. He looked at all the people that are standing in the jail and he says “You know what? I’m not stuck in here with you. You’re stuck in here with me.”

That’s what I realized about investors. It’s like I will talk about MakeLeaps for literally 24 hours with anybody who wants to talk about it. I’m very, very happy to discuss and talk. When people say, “You know what, I’ve been thinking for MakeLeaps. How about we do something like this? What do you think of this kind of idea?” I’m very happy to discuss anything with anybody about that kind of stuff. It’s my passion.

I sort of realize, “Well, hang on a minute. We’re getting with AngelList syndicate 60 people that are now financially interested in MakeLeaps and they’re intelligent because they’re investing in MakeLeaps.

Keith:  [laughs]

Jay:  They’re clearly cut above the standard person.

Keith:  They know what they’re doing.

Jay:  They know what they’re doing. They’ve had plenty of experience. For me, it was actually all positives. We never had any issues or problems because we had really great mentors. We had great lawyers that put together the deal well. We communicated what we’re going to do and how we’re going to do it.

Typically, when it comes to relationship breakdowns, it’s just a lack of communication about what everybody is thinking [Patrick notes: In business and in life!], so we made it a priority to communicate as much as we possibly could. We send out very regular investor updates on what we’re doing and how and current progress and all that kind of stuff.

I would say that we’ve been able to expand a lot and be able to do many different things with more resources. The core that’s got us to this point that’s been successful remains unchanged and that’s a good thing.

[Patrick notes: Seen from the outside, I’d identify the core of what makes MakeLeaps tick as a willingness to walk the line between being a natively Japanese company and a tech startup, Jay being the most force-of-nature CEO I’ve had the opportunity to meet, and a great willingness to just grind things the heck out.  Anybody can say “Try going to where your users are.”  Most people don’t sell $20 a month SaaS software by knocking on the doors of substantially every accounting firm in downtown Tokyo.]

The Benefits Of Raising Money

Keith:  I want to ask something a little more specific and you’re free to not answer this if you don’t want to. Where did you find that you had the most success with that funding? Is it building out your staff? Is it being able to do more marketing? Is it doing more events?

Jay:  I’m going to tell you guys something that you might not be happy to hear. It’s the same way for all bootstrappers. We bootstrapped for four years proudly. We’re happy we’ve gotten into this point. We’ve done very well.

We’ve received, I would say, slightly less recognition because we weren’t funded, and we weren’t in the media as much with things like funding announcements. As soon as we got funded, about a week afterwards, this one person I’ve known for a long time was like, “Oh, you got funded. Great. We’d love to do an interview with you.”

It’s like literally nothing has changed between now and when the money in our bank one week ago. Why are you interested to interview me now?

Keith:  It’s the social proof.

Jay:  Exactly. There’s social proof in that. There are certain things that have gotten easier and better as a result of getting funding, especially from well‑known people, but, as a bootstrapper, it’s always frustrated me. It’s like, come on, we are doing as well as these guys. In fact, better in many ways, but they are getting more press because they are funded.

Keith:  I do see that a lot with the bootstrapper community, especially some of the communities I am in. I don’t want to say, incestuous, but it is a closed circle. The people we know who are famous, they are famous within our circle, but if I was to talk to someone like at a newspaper, or someone in the larger startup community, they’d be like, “I have no idea who that is.”

It’s really interesting, because as soon as you get that funding, apparently, it’s this open door to, “Hey, we are a real company. We are a real boy now.” It’s frustrating, like you said. Nothing has changed.

Keith:  There’s an extra digit in our bank account now, but other than that, at that point, you haven’t even used that money yet.

Jay:  It’s a little bit frustrating, if you are operating a business, and people are suddenly interested in you, now that you’ve gotten funding, but that’s part of the game. At the end of the day, you have to figure out, how to make it work with your particular environment, the way that you have set things up.

If you can be successful and grow your business, and get plenty of media attention without getting funding, more power to you, that’s great. In Japan, people tend to respect social proof very much so…

Keith:  Did I ever tell you about the optical fiber guy, who came to my door, and try to sell me optical fiber?

Jay:  I heard this story, but it’s a good one.

Keith:  It’s a good story. I like this one. I had actually had optical fiber at this time, not through that company. He comes to my door, and he says, “You know, you are the last person in your neighborhood who has not had optical fiber installed.”

I thought about that, I am surrounded by grandmothers. I am the youngest person in my neighborhood. The three people on the side of me, I know for a fact, do not even own a computer.  They have no idea what a computer is, most likely.

He is trying to tell me that I am the last person with optical fiber, which I already have. This is interesting, because I know this works in the US as well. It is a very time tested proven strategy. It’s so effective in Japan. It’s not even crazy. I told this to my wife, and she’s like, “Oh, we should get optical fiber.” We have optical fiber!

[laughter]

Keith:  No one in the neighborhood has optical fiber but us.

Jay:  Keeping up with the Joneses.

Keith:  Exactly. It’s huge.

Patrick:  I am just realizing now, I bought optical fiber after hearing that pitch.

[Patrick notes: Seriously, I did.  I thought they were going to drop connections to the ASDL lines in the neighborhood or something.  What can I say, I’m a software guy, not a network guy.]

[laughter]

Keith:  It works.

[crosstalk]

Patrick:  Crying about it…

[crosstalk]

Keith:  Get optical fiber. There’s no…

Jay:  Not have it.

Keith:  Exactly.

Jay:  Absolutely, get it right…

Patrick:  Great reason for all you geeks to come out to Japan, you can come to Ogaki, where we have slow, slow one gigabit Internet…

Jay:  Two.

Patrick:  Two gigabit Internet, yeah, I am sorry. We upgraded in Ogaki. We’re where in Tokyo was in like 1997. [chuckles]

Keith:  What’s your speed right now?

Jay:  I’m not going to share how fast my Internet connection with you guys. [chuckles]

Keith:  No. I want to hear. How fast is your Internet connection?

Jay:  Oh, geez. I’ve been meaning to upgrade it one gig, which would be simple, painless and straightforward, but I think I’m still like 300 megabits.

Patrick:  Oh, man.

Keith:  Oh, god. That’s horrible. You’re almost American.

Jay:  I know and I’m Australian. What the hell.

Keith:  I was talking to a friend who was interning at Gawker. He’s like, “Oh, man. I’m so happy to be at Gawker because we have a 25 megabit connection.” I was like, “Since I moved to Japan, I’ve never had a connection that low.”

[laughter]

Keith:  12 years ago, when I was on a ADSL, it was faster than 25 megabits.

Jay:  Exactly. 10 years ago when I had like a wireless PCMCIA card, originally it was slotted into the laptop.

Keith:  It was still going at 350…

[crosstalk]

Jay:  …Of course. [laughs]

Patrick:  Anyhow, do you think we should be wrapping this up?

Keith:  I think we’re wrapping this one up.

Patrick:  Jay, do you have anything else you want to tell us?

Jay:  I suppose. Aside from the confusion where my name is Jason, but now pretty much everybody calls me Jay. I’m right in the awkward spot of transition my name from Jason to Jay. There’s still a bit of Jay, a bit of Jay all over the place but I answer to either.

Keith:  Should I go for Jay?

Sales For Geeks

Jay:  You can go for whatever you want. Honestly, if you make a noise in my direction, I will answer. However, even if you say Jay or Jay that’s fine. Speaking of which one thing that I’m pretty excited about that I should mention that Patrick has been helping me with a bit is I’m working on a new course called “Sales for Geeks.”

As a geek myself…I mean, people describe me as technical, but I can’t code very well. However, I’ve built and grown two IT businesses, one on the infrastructure side and one on the software SaaS side, so I do know a little bit about sales, communication and social skills to a degree.

Keith:  I want to mention that Jay is a force of nature when it comes to sales, networking or any sort of talking to people.

Patrick:  I’ve said for the last couple of years that Jay could probably get a meeting with the Japanese Prime Minister simply by showing up at his residence and refusing to be told no by any of the people in there. Four years ago, I said that like it was a joke. As I’ve become more friends with Jason, I think, it’s probably literally accurate.

Jay:  At this point, I should probably just do it to prove Patrick true.

Patrick:  [laughs]

Jay:  The Japanese, sometimes, if you’re being polite and friendly and you’re saying, “I need five minutes of the Prime Minister’s time.” It might be potentially possible.

At the same time, I also have a sales course to get out. Priorities I suppose. It’s very nice of you guys to compliment me in that way. As an Australian, I do struggle with compliments and accepting them in general.

Patrick:  What’s the name of that course?

Jay:  The name of the course, Patrick, is Sales for Geeks. You can access more information about this course at salesforgeeks.com.

Keith:  It’s such a deal!

[laughter]

Jay:  Order now and get a free set of steak knives. There’s no steak knife. Sorry. Order now, though.

Keith:  You’re doing it as a text course, an audio course, a video course, or…?

Jay:  I’m thinking video might be a good way forward, because in a lot of sales stuff a lot of it is quite visual. There’s a lot of body language. That factors into sales meetings in general. A video course would be a good way to do this.

Patrick:  We’re looking forward to seeing what you come up with. You can go to the website right now and start to get Jay’s advice delivered over email about this as he gets the course put together, and then you hear about it when it comes out.

Keith:  No commitment required.

Jay:  No credit card required. Sign up right now.

[laughter]

Jay:  Salesforgeeks.com if you’re interested at all in learning how to sell better. It would be great to have you onboard. I’ve got a bunch of stories, sales anecdotes, and interesting things that I’ve learned in a career of 12 years. I started my first company when I was 20. I’ve got a lot of stuff to share. If that’s useful or interesting to anybody, that would be great.

Keith:  I hate to talk Jay up this much. Actually, what am I saying? I love to talk Jay up this much.

[laughter]

Keith:  But, really, you’re up there with the three best salesmen that I know personally. I consider you, Ryan Delk, and Steli Efti definitely hands down.  [Patrick notes: Agreed.] If the three of you got into a room, either it would cause a singularity, and it would explode, or you would take over the world. It’s one or the other.

Jay:  Interesting. That’s very, very nice of you to say. All I can do is do my best to toil in the efforts of becoming the person that you both seem to think that I am.

[laughter]

Jay:  I appreciate both of your faith in me. I thank you.

Keith:  Jay, thanks very much.

[crosstalk]

Patrick:  We appreciate you guys being here with us for the long, long, long haul.

Jay:  It wasn’t that bad. It was about an hour and 10 minutes?

[crosstalk]

Keith:  …Yeah.

Patrick:  I was thinking more like the three years, which it took us to…

[crosstalk]

Keith:  Four.

Patrick:  Four years?

Keith:  Four years to get up to episode 11.

Patrick:  We ship babies and products faster than we ship podcast episodes, but it’s changing. We actually got up two in a month. Oh God, this is a regular thing to happen.

Keith:  This will be great.

Patrick: Drop either Keith or I an email about this stuff anytime, if you have ideas for what we could cover on the podcast.

Keith:  Ping us on Twitter.

Patrick:  Or you can ping us on Twitter.  Keith is harisenbon79, I’m patio11, and Jay is @JasonWinder.

Keith:  Suddenly, I feel like we’re on NPR. I don’t know why.

Keith:  “Thank you for listening to this edition of ‘This American Life.’ [laughs] This your host, Ira Glass.”

[laughter]

Keith:  Great show, by the way.

Patrick:  Great show, by the way.

Keith:  Thanks very much, guys.

Patrick:  Thanks very much.

Jay:  Thank you. Cheers. Bye‑bye.

Patrick:  Bye‑bye.

Operation Camouflage: How to Hide Your PPC Ads from Competitors

The benefit of hiding your PPC (Pay-Per-Click) ads from competitors is pretty obvious.

PPC advertising is extremely competitive. You compete not only with your direct competitors but also with big-budget advertisers like Amazon and Ask.com who seem to bid on every term under the sun.

Which is why hiding your ads from competitors is a great idea—so they can’t copy your ads and so they won’t be able to study the latest PPC strategy you’re testing.

Once you’ve found a headline, ad copy, and display URL combination that works, you don’t want your competitors being able to study what you’ve done and reverse engineer your ads or new landing page strategy. It takes time and money to find a winning combination, something you don’t want your competitors to copy simply by studying your ads.

So it’s obvious why businesses would like to hide their ads from competitors. The more difficult step is figuring out how to hide your ads from the competition. Sure, everyone would like to do it, but how do you set things up so your direct competitors can’t see your ads. Is it even possible?

The answer is yes, and this post explains two different ways to do it.

Option #1: Use Geotargeting to Hide Your Ads

The first option is to use geotargeting to hide your ads. The upside is that this is the easiest option to implement, the downside is that it’s not quite as effective as option #2.

To use geotargeting, you first need to know where your competitor’s office is located, something you can easily uncover by going to your competitor’s Contact page and making a note of where their office is located. If it’s in Seattle, for example, then you know to focus your geotargeting efforts on Seattle.

Next, you need to change your geotargeting settings so your ads won’t show up in the city where you’d like to hide your ads. You can do this by clicking “Settings” at the campaign level, and then scrolling down to locations, searching for the city you’ve chosen to target, and then clicking “exclude” as seen in the screenshot below.

joe-p-picture-1

Once again, the upside with this option is that it’s easy to implement and can be done in a matter of minutes; the downside is that it’s not quite as effective as option #2 and you’ll miss out on potentially valuable clicks by customers who live in the same city or region where your competitor’s office is located.

This means you’ll need to do a Risk vs. Reward analysis to see how important it is to hide from your competitors. If you’re in a highly competitive industry, it may still be worth it, but if you can’t afford to miss clicks from the area you’re targeting, then you’ll need to either use option #2 or possibly consider not hiding your ads at all.

But just in case option #2 is a better fit, let’s go ahead and move on to that now.

Option #2: Blocking Your Competitor’s IP Address

For the next option, you’re going to exclude your competitor’s IP address so they can’t see your ads.

At some point, Google created IP exclusion so advertisers can block specific IP addresses from seeing their ads. The purpose for this feature is to block addresses that may be costing a business a lot of clicks without generating conversions or might be coming from a malicious source. The good news is that this feature can also be used to also block competitors from seeing your ads, so long as you know their corporate IP address.

Here’s how it works: First, you identify your competitor’s IP address. Next, you enter their IP address into AdWords to exclude the address from seeing your ads. The result is that your competitor’s can no longer see your ads from their office.

This ends up being more bulletproof than option #1 and means you don’t have to sacrifice showing your ads to an entire city or region just to block your competitors from seeing your ads.

So how do you get your competitor’s IP address? This is where it gets a bit tricky…

One way is to send an email to someone at the company and then to record the outgoing IP address from the reply. There’s a good chance that the IP address matches the corporate office, but it’s also possible that the IP address is from the email provider. Either way, go ahead and exclude it just in case it is the competitor’s office IP address.

The next thing you can do is look at your website server logs and match visits to your site from IP addresses that originate from where your competitor’s corporate office is located. This takes a little bit of time and is more imprecise, but if there are a lot of pings over the course of a year from the same IP address in the city that matches your competitor’s corporate office address, then there’s a good chance it’s from someone from their office checking out your website. You might accidentally block a customer, but you’ll definitely block fewer customers than you will with option number one.

Once you’ve recorded the IP addresses you believe belong to your competitors, click on “Settings” again, scroll down to IP exclusions, and then add the IP addresses you’d like to exclude as seen in the screenshot below.

joe-p-picture-2

Bonus Tip: Blocking Competitor’s from Specific Campaigns

Another option is to only block competitors from campaigns where you’re bidding on their brand name. This means they won’t see your strategy for bidding on their branded terms, but you won’t block everyone from a certain city from seeing your ads.

In the example below, Volusion uses a comparison landing page while bidding on the term “shopify.” They then go on to explain how their customers earn on average four times more than those who sign up for Shopify.

joe-p-landing-page

(You can see the full landing page here.)

This is the kind of page or campaign you’d want to hide from the competitor who’s brand term you’re bidding on.

To do so, simply set up an AdWords campaign for a single competitor or for all of the competitor terms you’ll be bidding on. Next, follow the steps from option #1 above to hide your ads from your competitor campaigns without cancelling all of your ads for a particular city.

Should You Take the Time to Block Competitor Ads?

The answer to this question depends on your business and your industry. If you’re in an extremely cut-throat industry (think companies like Geico and Progressive or Volusion and Shopify), then it’s definitely worth the effort. It will take a bit of time to get things set up, but being able to hide your ads from the competition will pay off in the long run.

It also makes sense if you’re a small company going up against a large corporate advertiser. Hiding your ads at the outset means you won’t wake a sleeping giant at the point when you’re attempting to gain as much market share from a company with nearly limitless resources.

Sun Tzu also teaches a valuable lesson about hiding from your enemy in the Art of War where he says, “Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.”

You still need to figure out how to optimize your AdWords campaigns so you can “fall like a thunderbolt,” but hiding your ads gives you the advantage of testing new campaign variations so that your plans are “dark and impenetrable as night.”

What will you do? Will you hide your plans from the competition, or do you not think it’s not worth the time and effort it takes to set this up? Share your thoughts by leaving a comment.

About the Author: Joe Putnam is the VP of Marketing at iSpionage where they make it easy to download competitor keyword lists and also are the only company to offer landing page surveillance which saves screenshots of competitor PPC landing pages for easy review and an endless stream of new A/B testing ideas for PPC marketing managers and teams.

In SaaS, Your Burn Rate is Muchly a Function of Your Chosen Competition

I’ve been doing this SaaS thing for a solid decade now, with some success, and plenty of mistakes, and yet there are some questions that are at some level, almost a mystery, mostly around “average” CACs and “average” burn rates in SaaS:

  • Screen Shot 2015-02-26 at 7.39.32 AMWhy was Veeva able to burn only ~$10m net on its way to an IPO?  Yet Box needed $250m?  And why was say MobileIron (also at SaaStr Annual) in between those two poles at IPO?  All sell to the Enterprise. So it’s not that.  Yes, Veeva has a very high ACV, with prepaid contracts.  That helps a ton.   Yet … is that really the whole story?
  • How did Pardot get to a $100m exit without any venture capital, when competitors Eloqua, Marketo and Hubspot needed tons?  David Cummings please chime in, but see our case study here.
  • Why was Dropbox so insanely capital efficient in the early days (not anymore), when Box wasn’t?  It’s not just because it’s freemium, folks.  Box has a freemium component too, albeit a pretty small one today.  So did YouSendIt/Hightail, Drop.io, and 52 others.  And now Dropbox is burning a lot.   Why?
  • Etc. etc.  Why are burn rates so divergent in SaaS?

Now, at a micro-level, we can come up with a lot of factors that explain various burn rates:

  •  Some founders certainly are scrappy.  Others ain’t.  At the SaaStr Annual, all the CEOs on our “Second Timers” panel had relatively high burn rate, well-funded start-ups.  Perhaps in part because they had that luxury — they already had a win on their belt.
  • Market dominant strategy does work in SaaS, at least muchly.  So might as well play this card if you can.  This is a fine reason to spend a bajillion dollars.  Mark Organ (founder of Eloqua, CEO of Influitive) talked about that here.  A longer SaaStr post on Dominant Strategies in SaaS here.
  • Some spaces have higher CACs that others.  I guess.  Maybe.  But that’s not the answer.  It’s just a derivative of what I think the “root cause” is.  Because if you’ve ever bid on Adwords, you know exactly what drives the price of an Adword up.  Competition.

Now I have the luxury of working with about 20 SaaS companies directly, in one form or another (institutional investor, advisor, angel, friend).   And I have also my personal experience to build on.  I got to cash-flow positive at $4m in ARR growing > 100% YoY with a sales-driven model.  So it can be done.  If I did, you can probably do it too.

I think one thing is clear to me:  SaaS burn rate is highly correlated to Your Chosen Competition.

Let’s go back for some examples and look at Talkdesk and Guidespark, who we did a deep dive on at Dreamforce here and both of whom presented at The SaaStr Annual.

Talkdesk has gone from basically $0 to $6m in ARR in 14 months, and is cash-flow positive.  Hmmm … Now let’s dig in.  On the surface, Talkdesk is in a very competitive and old category with scores of vendors.  Contact center software.  Bigger incumbents, for sure.  And yet … yet … I’m pretty close to the company.  And sales is hard there, sales is always hard.  But Talkdesk has a pretty differentiated product if you really understand the market.  There is competition in more and more deals now there, but at least today, Talkdesk is differentiated enough that once you get a great sales rep in the deal … they win.   That will change as they get bigger, and compete more and more head on with others.  Then, their win rate will actually goes down (as it does to all of us, once we hit the mainstream, but before we have the dominant brand).  But today, Talkdesk is far enough ahead of the competition they see today that they’ve gotten to $6m in ARR without even a VP of Marketing, as the CEO noted at the SaaStr Annual (for better or worse).

Guidespark also presented.  They’ve gotten to $20m+ in bookings in the past 24 months with a relatively modest amount of capital spent (a decent amount raised, but not all that much spent).   As the CEO and VPS noted at both The SaaStr Annual and at Dreamforce … there’s tons of competition for employee training, their broad space … but for the true solution Guidespark delivers … the competition is relatively defined and specific.  At least, it’s not bare-knuckle, to-the-death competition against 3 can’t-hardly-tell-the-difference competitors in every single deal.  The real competition is just getting the customer to actual buy.  Budget.

Now of course, at least in theory, the fewer the places you compete, the smaller the current opportunity you address — and perhaps, the slower you grow.  With hindsight, the reason I was able to get cash-flow positive at EchoSign is because I focused on areas where I had a clear competitive advantage (in the early days), and avoided areas I didn’t.  I’m not saying this is right way to go.  I’m just saying it’s more capital efficient.  I suspect the story was the same for Pardot, where they seemed to have focused on a segment of the low-end of the market in the early days, back in the day, below Marketo and Eloqua and adjacent to Hubspot.  Today, under Salesforce, it’s become a direct competitor.  But I suspect not as much, back then.  And Veeva as we discussed above — it’s not as if there are 20+ enterprise-grade Pharma SaaS CRM solutions …

Ok now let’s go back to Box.  Box has simply been in the most competitive category in SaaS, IMHO.  But now … in the past few quarters … their CAC has declined.  Their magic number has fallen below 1.0.  Why?  We didn’t address this directly with Aaron at The SaaStr Annual.  But we addressed it indirectly.  Box has become The CIO’s choice, and this is a relatively recent development.  As that happens, the direct marketing costs goes down.  You don’t have to struggle to get the word out — the prospects already know they want Salesforce, for example.  And that’s happening with Box now too.  You don’t have to convince them to pick you, to come to you.  And so you can spend more on brand (which often has a fixed cost, so the cost per customer goes down).  And more and more leads just come to you, and if you are perceived as “The CIO’s choice”, the job of sales becomes not so much to convince you why this is the vendor of choice … but rather … why to buy now, vs. later.  Your competition becomes budgets more than other vendors.  That’s cheaper.

So what’s my point?  I guess maybe just 3 things:

  • First, find the CAC that works for you.  This may sound silly, but it isn’t.  As interesting as the 40% rule may be, it’s just an average or a median.  If you’re in a highly competitive space, and you’re playing to win, you probably need to spend more to take the incumbents on directly.  But if that doesn’t work for you, focus for now on the segment where you are 10x better and get the leads to (eventually) come to you.  If you’re a Second Timer and can raise $15m tomorrow, you can go head on with anyone you want.  If you can’t .. don’t.  Average burn rates, like CAC Averages, are misleading.
  • Be careful of others’ models and burn rates.  You don’t know the whole story.  Get the real story.  Yammer as some amazing freemium story?  Only in part — as a top-of-funnel accelerant.  As David Sacks noted at The SaaStr Annual, he scaled up an enterprise sales team in Year 1.  Slack?  As Stewart Butterfield noted, even with an epic ’14, it’s still really selling to software product teams.  They don’t need a single rep to get to $20m and then $100m ARR.  That may not be you.  It wasn’t Yammer, neither.

  • Capital is a weapon.  But don’t let it discourage you.  You may need an extra $100m to win your category (more on that here).  But if you can’t pull that off, focus on your competitive advantage and triple down there until your cost of capital becomes trivial.

Net net, if you have a truly differentiated product, that’s a real solution … there’s more than one way to get to $10m in ARR.  In today’s world, where everything is growing faster than ever in SaaS, I’d throw fuel on the fire as much as you can.  Grow as fast as humanly possible.  Just don’t let your peers’ burn rates and pre-Initial Scale growth strategies confuse you.  You can pick and choose how and where you compete, and at least in part, your way up to the top.

Why the Internet is Broken

Andrew Keen, author of The Internet is Not the Answer, talks with us about how he believes the [free] business model of the internet is "broken". The rise of big data companies and the increasing attempts to monetize almost every human activity has led to an exchange of goods and services for personal data - and that's increasingly dangerous and invasive.

Show Notes:

  • Andrew Keen
  • The Internet is Not the Answer
  • Andrew's Website
  • Intro Song by Alex Koch of Digital Dust Studios
  • Outro Song Cosmo Sheldrake - "Rich" Feat. Anndreyah Vargas"
  • How to Manage Friction to Hold onto Your Customers

    As I looked at my monthly credit card bills, I knew what had to be done.

    I had to turn off 1-Click ordering on Amazon.

    The conventional rule of creating a great product is to remove all the friction in the user experience. Make it easier to get stuff done at a push of a button. Friction, bad! Fast, good! Let’s take my personal finances out of the equation and look at the buy-now action that Amazon popularized. It’s the very model of a frictionless experience. See, like, want, buy, done.

    Generally, people just want to get to their desired result — whether it’s to be entertained, feel more organized, learn something, or buy socks because you don’t want to do laundry. And they’ll be more likely to use your product if you help them reach their result and stay out of their way.

    Friction is often your obstructive culprit, especially at that reluctant stage of new user inertia. That’s why so many sites and services use social logins using Facebook, Google, and Twitter to sign people up with one quick click. But is the one-click, quick-push method always the smartest choice?

    Sometimes you need some friction to help people stick around rather than slip away.

    The Art of Friction Jiujitsu

    Lumosity discovered that a little bit of friction is valuable in the long run.

    Getting the sign-up flow for an app or website is crucial, which is why so many use that minimal 1-click approach. Enter an email address — or better yet, click to log in with social — and boom, you’re in.

    Lumosity decided to put this convention to the test, experimenting with sign-up flows with various levels of complexity. They found that having people answer questions led to fewer sign-ups, but as Sushmita Subramanian, Director of Product Design, explains: “those people who made it through were more valuable — people who were willing to invest in our product, who would pay to subscribe, who would continue to use it for a longer period.”

    Lumosity signup survey screen

    The current sign-up flow takes you through 5 survey questions before you can even enter your email address. Once you do, there are 2 more screens with even more questions on demographic and personal details, such as education level and how much you sleep. Still not done, you then take a “fit test” to “calibrate your starting point.”

    This is friction as intentional design.

    Lumosity extra questions signup flow

    As Subramanian says, “What we found is that sometimes friction can help you acquire customers that really believe in your product, who want to build a long-term relationship with your company.”

    At the end of the day, you want to prioritize having more customers rather than having more sign-ups.

    Purpose-driven Friction

    Your process affects not just quantity but quality of your users — which in turn impacts your workload and business. Attracting new sign-ups willy-nilly may be counterproductive, not only increasing churn but straining your support resources.

    Withdrawing a credit card requirement to remove friction at signup, for example, can require more intervention to activate and onboard new users. As Planscope’s Brennan Dunn points out, when people actually make it through a paywall to sign up, they’ve done their research. He explains:

    You must revisit the way you onboard new users if you drop card requirements. It’s not that you get crappier users when you drop the card requirement; you get less informed users.

    Remember, it takes a combination of motivation, ability, and a trigger to enable behavior change, according to the Fogg Behavioral Model. A trigger nudges you to act — but whether you actually do take action relies on your level of motivation and ability. Friction can impede both motivation and ability. If you have to trudge up an enormous hill to return a library book, you’ll probably procrastinate.

    Lumosity "We are personalizing your training program."

    However, friction can boost your motivation if it’s for your benefit. Lumosity emphasizes the personalization angle of its survey questions, which ultimately gets people engaged and invested enough in the app to pay. The friction here is intentionally framed as beneficial for the user. The result —10% higher subscriptions than without friction.

    The takeaway is to make any points of friction purposeful. Does it serve the user or provide value to you in the long run?

    How to Use Email to Calibrate Friction

    Whether you want to introduce deliberate friction or remove counterproductive friction depends on user lifecycle stage and context.

    There’s the friction of retention — the slow, cumulative process of other interests, apps, and everyday life crowding your product out of people’s attention until rolling at last to a stop. There’s the welcome friction problem of the happy customer who wants an upsell like annual billing or to help refer customers but doesn’t have an easy way to do so. There’s the counterintuitive Lumosity-style friction filter where adding intentional hoops to jump through is beneficial.

    Often these points revolve around email, whether it’s grabbing for the gold ring of your email address as part of sign-up or using it as a trigger. Just remember that deploying emails as your trigger can also turn into counterproductive friction. Ever get a barrage of emails after signing up for a product? However well-meaning they are, they can get annoying and motivate you to hit unsubscribe.

    Now, let’s look at how three companies are calibrating friction around their signup and emails:

    Pinterest

    Like Lumosity, Pinterest deliberately inserts friction into its user signup flow. While their first step starts with entering an email address and name, they then ask you to choose 5 topics of interest to follow. Like Lumosity, they frame this as a personalization step to “build a custom home feed for you.”

    Pinterest signup makes you follow 5 interests to create a "custom feed"

    The flow then asks you to install the Pinterest browser button — and even if you choose to skip this step, they don’t let you proceed without another insistent nudge.

    Pinterest signup insists on downloading button

    If you complete these screens, you’ll also find three emails in your inbox — a confirmation email to verify your address plus two others that provide education and tips about how to use Pinterest.

    1 of 3 Pinterest welcome emails

    Pinterest understands that the up-front friction of receiving multiple emails, filling up a custom feed with existing content, and downloading a tool to pin or save content helps activate new users. All this just to get started reduces counterproductive friction down the road.

    Buffer

    Anyone who handles social media for a business understands the struggle to feed the never-satisfied monster of your social feeds with content. Buffer understands that pain and offers a solution that not only keeps users active (making the company happier) but also helps them accomplish their goals (making customers happier). It’s a win-win.

    When your scheduled posts run out, Buffer not only sends you a quick email nudge to fill up your queue but provides 3 post suggestions to reduce the friction of having to find new content to share. A quick click on “Add to Buffer” lands you directly in your account with the post set up, and all you have to do is press a button to add it to your queue.

    Buffer nudge email to refill buffer queue

    This double-duty nudge, keeping you actively using the tool and removing a barrier to content creation, is a genius friction-removal tactic to keep up momentum. It’s like knowing when to give somebody another push on the swings to keep them going.

    Planscope

    Planscope calibrates friction in its signup flow carefully, inserting deliberate extra steps on the one hand and removing barriers on the other.

    At first glance, Planscope’s signup process looks like the 1-Click variety. Enter email address to open sesame to the product right away.

    Planscope signup flow homepage

    Upon entering your email address, though, you have to provide some more information — including details about your business, such as what field you’re in and team size. That helps Brennan and his team know who is a qualified lead (that will stick around and find Planscope’s project management tool useful) and reach out accordingly.

    Planscope signup flow survey

    This mini-survey also personalizes an onboarding process, where the friction of not knowing where to start is removed. After completing the sign-up flow, you’ll see a demo project — that corresponds to the field of work you’ve chosen in the sign-up flow — already in progress with tasks, time, and budget already filled in.

    Planscope reducing fiction demo data

    This sample material provides a mental shortcut to understanding the possibilities of the tool and learning how to use it. For example, when I created my first project, I didn’t quite get the distinction between Task Group and Task Name, and referring back to the demo data helped me figure it out in seconds.


    Creating a completely frictionless experience might mean that people sign up and then slide right on through to inactivity and cancellation, like a slippery bar of soap.

    Instead of simply identifying where friction appears in your user journeys and stamping it out, examine where you want to intervene with a trigger or put the brakes on the speed of the journey and why. It’s a matter of purposeful design as well as continual recalculation and recalibration to get everyone — and your business — where they want to go.

    Have you ever seen other successful examples of calibrating friction? We’d love to hear your thoughts and stories in the comments.

    Calling all startups: content marketing research

    A few weeks ago Dan launched a new Facebook group called Content Machine. The group is a community of passionate content marketers interested in improving their skills. Each week they have a content challenge based on a chapter in Dan’s upcoming book Content Machine.

    Data driven content has become very popular over the last few years. It can be things like quizzes, running a survey and analyzing the results or combining data from other sources. issued a challenge to create some data driven content.

    content-maching-data

    The research we are doing for the challenge is an examination of the content marketing practices of startups. We have seen research on what bigger brands are doing, but we feel there is a need to understand startups specifically. We believe startups are leading the pack in content marketing. The information that comes out of our survey should be more relevant for small businesses and startups looking for an example to follow.

    We would like to invite our friends in startups to contribute to this research. Whether you are doing content marketing or not, if you are a startup, please take 5 minutes to do the survey.

    We will be putting together a detailed analysis once it’s complete, and we’ll report back via the blog.

    Powered by Typeform

    The post Calling all startups: content marketing research appeared first on WP Curve.

    A To Z Of Using Asana For Project Management

    Kyle’s note: We have been talking a lot about Trello recently. We wanted to provide similar perspective on another project management tool, Asana. In this post Dan Virgillito shares his experience with the tool.

    Asana is a task-based project management system, well suited for individuals and teams of every size. For one-man organizations, Asana provides an easy way to plan work and stay on top of pending deadlines. For teams, Asana offers a way to encourage collaboration and ease communication about projects.

    In this post I go into every detail about using Asana for project management.

    The problem with email

    Email is a great way to communicate with clients and people on your team. Unfortunately, it can quickly become cluttered, especially when the people you email are involved in multiple projects. Most email providers and suites allow you to easily sort by the sender of the email, but that doesn’t make it easy to determine which email pertains to which project.

    With Asana, messages are tied to projects and to specific tasks within that project. If you get an email in your own inbox, you can forward that email to Asana so that the email stays with the project it’s related to.

    Projects

    Asana uses projects to divide the work into manageable units. These projects can be almost anything, and Asana provides a few ideas and templates to help you get started with your projects.

    Asana projects

    The project itself can be managed independently of any tasks. A project manager or owner can be assigned, a due date for the entire project can be set, and details about the project can be entered directly on the project screen.

    Individual team members can post a status update on the project’s main page, and the status of the project is tracked by determining how many tasks have been assigned and how many have been completed.

    Tasks

    If you’re brainstorming ideas and you don’t want to slow down, you can easily add new tasks to your project by simply typing and pressing ‘enter’ at the end of your line. To create a new category, use the colon after your category name and a new category will automatically appear.

    Once you have a good list of tasks, you can use the task detail window to fill in the important details. Click on the arrow at the right of the task title and the task detail window will appear.

    task detail window in Asana

    Task details

    Each individual task gives you the option to assign it to yourself or a team member by clicking on the button at the top left-hand side of the window – this will either have your name or it will say “Unassigned”, and you can assign it to a team member or leave it assigned to yourself. You can also leave it unassigned and allow your team members to decide who wants to do it; they can assign themselves or another team member to the task. The calendar button can be used to set a due date for the entire task.

    Subtasks

    The list button next to the calendar can be used to add subtasks. Subtasks can be individually assigned, commented on, and have their own individual due dates. For example, if my task is to write five posts for my blog, my task might be titled, “Write five posts for the blog.” My subtasks might have the name of each individual blog post I plan to write. For every task and subtask, I can add details like research materials I’ve found, outlines, or specific instructions.

    Tags

    Tags can be attached to projects, tasks, or subtasks, and this is an often-neglected but very useful feature. For example, I might have three projects for the same company. Each individual project can be tagged with the company name, which makes it easy for me to search for all tasks related to a specific company.

    Attachments

    The “paperclip” button can be used to attach files to the project, and this is where Asana really shines. Because Asana has a lot of flexibility to create and alter assignments, all necessary files go with the project or task. With email, if I assign a team member to do something with an attachment, I email that attachment to him. If for some reason he’s unable to complete the project and I have to reassign it to someone else, I also have to re-send all the attachments and files related to that project. With Asana, I can easily change the assignment and the new team member immediately has access to the files that he needs to finish the project.

    Asana provides a lot of different options for adding attachments. Files can be uploaded directly from a computer, and they can also be attached through cloud drives including Dropbox, Box, and Google Drive.

    Emails pertaining to the project can be forwarded directly to Asana, and team members using their mobile devices (iOS or Android) can use the Asana app to connect attachments even when they’re away from the desk.

    Hearts

    The hearts feature is useful for projects that haven’t yet been fully fleshed out. Team members can “heart” a project or task, which means that they’re showing approval for it. For example, I may come up with a dozen ideas for a new post and place them as tasks into a project called “Post Ideas.” My team members can look at these titles and heart the ideas they like the best, giving me valuable feedback in determining which ideas to work on next.

    Time tracking

    Most teams won’t use the time tracking feature, but it’s useful if your team is billing by the hour, or just if you want to keep track of how your team members are spending their time. The stopwatch button connects this project to “Harvest“, allowing your team members to track the time spent on each individual project. By connecting to Harvest, it allows you to accurately track time for billing and to monitor time usage directly on Asana.

    Permissions

    Each task can be assigned different permissions. When the padlock icon is open, the task is visible to every member of the team. When the padlock is closed, the task is visible only to the creator, any responsible parties, and any team members listed as followers.

    Description

    The description allows you to share information about task specifications, information needed to complete the task, and clarification about what the task itself entails.

    Comments

    The comments box can be used for status updates from team members working on the task or for questions they have about the task. In this way, the comments function replaces the back-and-forth emails that might otherwise be sent. Any team member who’s got permission to view the task can comment on the task.

    Followers

    Finally, the followers tab at the bottom allow you to assign followers to the task. The followers might just be other team members who need to have input, or they might be supervisors who need to be able to supervise work on the task.

    Using Asana as an individual

    When you first open Asana, you’ll either see your dashboard or your My Tasks window, depending on which option you have in your settings. The My Tasks window will show your tasks either in list view or calendar view, showing you at a glance which projects are due on which dates. To sort your tasks in list view based on due date, you can use the arrow next to the View button to change the task sort order. You can also use the “Calendar” button to display the calendar.

    Tasks can be checked off the list, and by clicking on the arrow at the right of the task title, you can bring up the task detail window. This is where you can change the details of the task or work on checking off subtasks. New tasks can be added directly to your My Tasks window, or you can add them to individual projects.

    Projects

    To add a new project, click on the plus sign to the right of the Projects heading. Your existing projects will be listed by title beneath the Projects heading. Clicking on the arrow to the right of the project name (it appears when you hover over the name) will bring up the project arrow menu. You can copy or delete the project, assign it to your favorites, or set a highlight color for it.

    Checking on your team

    To check on your team, click on Team Calendar in the left sidebar of the page. This will bring up the calendar which shows everything your team members are working on by due date. You can simply drag and click assignments to a different date to change the deadline, or you can click on the task to bring up the task detail window.

    My inbox

    Clicking on My Inbox on the left sidebar of the page will bring up your inbox. This gives you a list of every change that’s been made on projects or tasks you’ve created, are assigned to, or are following. This allows you to see at a glance if any of your team members have made changes or adjustments to your tasks or projects.

    Ways to use Asana

    Asana is incredibly versatile, and it makes a great tool for time management, project communication, and personal organization.

    Personal organization

    One of my colleagues is a freelance copywriter. He uses Asana to manage clients and stay current on deadlines and outstanding projects.

    Upon getting a request for a proposal, he adds three tasks to his “Proposals & Contracts” project that are tagged with the client’s name and include the details or email attachments he was sent. The first is “Write proposal,” then, “Send proposal.” He also writes a task that says, “Follow up on proposal,” and is due a few days after he sends it. When a client accepts the proposal, he uses the same process to send the contract and follow up on it.

    Once a job is accepted, he creates a new project for it, using his tasks as milestones. The tasks listed in the My Tasks pane help him to make sure he doesn’t miss a milestone or a deadline, and he color-codes his projects to help him easily see the different clients he’s working for.

    Because he doesn’t work with a team, he seldom uses the team functions built in to Asana. But Asana can be used effectively for an individual who works on a project basis. Students – especially college students – can use Asana to keep track of class assignments, projects, tests, and materials by making each class a “Project” and each assignment an individual task. They can use tasks that aren’t affiliated with a project to remind them of a date, a party, a networking event, or just to call Mom.

    Team collaboration

    Personally, I use Asana for team collaboration, and I find it especially useful for geographically separated teams. Any change in instructions can either be made directly to the project or task, and comments allow me to communicate changes to my team members located anywhere in the world. Skype is nice for real-time communication, but if you’re working with team members located in different countries or time zones, it can be difficult to set up a time for a Skype conference. Asana allows me to share information with my team without demanding that they work according to my own time zone.

    Asana is also a great tool for creative work that requires input and collaboration from an entire team. The hearts feature allows me to toss out ideas and get quick feedback, and the comments allow for more detailed communication. Asana allows all of the minds on my team to come together as a mastermind, resulting in some great ideas and amazing projects.

    But Asana is also a great way to supervise my team members, which is more important when you’re working remotely than when all your team members share an office. I can tell at a glance who’s supposed to be doing what and whether they’re doing the work or not, without having to review keyloggers or spend all my time staring over someone’s shoulder. Asana gives me enough data to keep me informed without requiring that I waste time micromanaging.

    Creative teams

    Ron Dawson of Dare Dreamer Media uses Asana for creative tasks. He works with multiple workspaces to define specific businesses or business functions, including one workspace for Dare Dreamer Media (his video and new media production company), one workspace for Teen Identity (his photography and magazine company), one workspace specifically for customer relationship management (CRM), and one specifically for his own personal projects. By dividing his work into different workspaces, it makes it easy for him to place projects into specific workgroups.

    Dawson says that one of his favorite features in Asana is the ability to duplicate the task list from a previous project, allowing him to ensure that every project progresses smoothly with the same tasks being accomplished. For someone working with film production, it makes it easy to duplicate the workflow necessary for every project.

    Another way that creative firms like Dare Dreamer Media can use Asana is with collaboration. By adding a comment with a person’s name (like “@Sally”), that person is automatically added to the project as a follower. Every follower (as well as the person assigned to the project) can comment on the project, adding their ideas and input. Responsible team members can comment if there’s anything they have questions about, and followers can answer their questions within the task itself; this allows the questions, answers, and ideas to be stored within the task itself so that followers or future responsible parties can easily follow the information.

     

    Bug tracking

    Asana’s own team uses Asana for tracking bugs in their software, and there several other companies that use it for this purpose as well. Bugs can be entered in as tasks, sorted based on priority, and assigned to a coder or programmer to be fixed. Several other companies have praised Asana for bug tracking, but not everybody is thrilled with it.

    When the person entering the bug to Asana is relatively tech-savvy, Asana is more well-liked. If users or non-technical co-workers enter a bug, they frequently mistake a user error for a bug. They may not know how to prioritize bug reports. This often results in additional or unnecessary work for the developers. Additionally, if users are entering bugs directly into Asana, it’s very common to get duplicate entries, making it hard to see when a bug has been finally fixed. Finally, Asana doesn’t always make it easy to report on bug tracking, at least not in the format that’s often requested from the development team. This, however, may be more of an issue with organizational structure and expectations than Asana.

    The good news is that, as Asana is using their own platform for bug tracking, they are making continual improvements and listening to feedback from their users. Additionally, a number of third-party companies have developed add-ons and API scripts to help increase the functionality of Asana for bug tracking, or to help integrate a bug-specific program with Asana’s tasks. For example, Usersnap has an app that allows users to take a quick screenshot of the bug and add that to an Asana task. BugHerd has a script to integrate bug reports to your Asana tasks.

    Asana’s popularity means that in a log of organizations, Asana is used by tech people and non-tech people alike, so where it’s not a perfect tool, it’s improving rapidly as a result of feedback and tech people trying to integrate their existing tools with the Asana task management tools.

    Related posts: How we effectively use Trello for project management

    Conclusion

    If you’re the type of person who makes a to-do list, or a company handling a multitude of projects, Asana is a perfect digital equivalent that helps keep you on track. If you need to communicate with team members and be able to share data, files, and attachments easily, Asana can take the place of email to make that communication more efficient. It’s a robust project management tool, but it’s flexible and easy to use for almost any size of project or team.

    Asana is free for up to 15 team members, with paid accounts beginning at $50 per month and above based on the number of people.

    JOIN 16,000 AND GET OUR BEST CONTENT

    Each week we send 1 email to 16,000 smart entrepreneurs. Enter your email below to join the crew.

    We will not share your email. 100% privacy

    The post A To Z Of Using Asana For Project Management appeared first on WP Curve.

    Everyone Starts With Nothing (Stop Making Excuses)

    It’s easy to come up with reasons
    why you won’t succeed. It also
    ensures that you never will.

    Not too long ago, a reader left a comment on one of our posts.

    I don’t know who the commenter is, and I’m not writing this post to attack him or her.

    But this isn’t the first time I’ve heard this. I frequently see comments here (and on other blogs I read) along the lines of “this advice is great, but it won’t work for me because of (what I don’t have/who I don’t know/where I don’t live).”

    My first reaction was to say “that’s bullshit,” because it’s true. Nearly everyone starts with nothing, and every founder you see who’s achieved some modicum of success has had to overcome tremendous obstacles to do it.

    But the more I thought about it, the more I realized that so many of us — myself included — often think this way at some level.

    We look at what others have, and we think, “that’s great for them, but I couldn’t do that because (excuse).”

    It’s a crippling way to think, and I’ve had to work really hard over my career to suppress that sentiment and replace it with something more productive.

    And that’s what I want to share with you today.

    We All Start With Nothing

    With the exception of a select few, most entrepreneurs start with few connections, no funding and no huge competitive advantage aside from their idea, their own intelligence, their passion and their hustle.

    When I started my first company, I certainly didn’t have a leg up on anyone in any tangible way.

    And tons of entrepreneurs far more brilliant and successful than I started from much, much closer to the bottom than I did (Jan Koum’s rags-to-riches story comes to mind).

    It was so run-down that our school didn’t even have an inside bathroom. Imagine the Ukrainian winter, -20°C [Ed. note: -4°F], where little kids have to stroll across the parking lot to use the bathroom.
    Jan Koum

    But I looked at successful founders who were IPO’ing or selling their companies for big money, and I’d think of reasons why they could succeed, and I couldn’t.

    As I got more experience, and saw what it actually took to overcome barriers, I realized what a huge mistake I was making: I was comparing myself to people who had already done the work. They were ten steps ahead. But that didn’t mean I couldn’t take the same steps.

    There’s a quote that I love, though I’ve seen it attributed to so many different people that I have no idea who’s ultimately responsible for it: “Never compare your beginning to someone else’s middle.”

    And while I don’t think comparing my beginning to someone else’s middle has given me anything but doubt in myself, I’ve gotten tremendous value from studying other people’s “middles” to think about how I can achieve the same things.

    It’s an attitude shift that will transform you:

    “It won’t work for me because ____.”

    How many times have we all said something like that?

    At one time or another, I’ve had many doubts about myself (which is not to say that I don’t still doubt myself often today):

    “I’d love to grow a startup, but I’m not in SF or NY.”

    “I’d love to build a web app, but I have no idea how to code.”

    “I’d like to give my business a fighting chance, but I don’t know any VC’s or wealthy investors.”

    Almost all of us have questions like this when we think about what we want to accomplish.

    In my own experience, I’ve found one thing to make a huge difference in whether I accomplish my goals or not: it’s whether I treat those questions as challenges to be tackled, or excuses for why I’ll fail.

    In The Magic of Thinking Big, David Schwartz calls this the Power of Belief.

    It may sound corny, but the sentiment is hugely powerful, and just as appropriate now as it was when it was first written more than 50 years ago.

    1. Think success, don’t think failure. At work, in your home, substitute success thinking for failure thinking. When you face a difficult situation, think, ‘I’ll win,’ not ‘I’ll probably lose.’ When you compete with someone else, think, ‘I’m equal to the best,’ not ‘I’m outclassed.’ When opportunity appears, think, ‘I can do it,’ never ‘I can’t.’ Let the master thought ‘I will succeed’ dominate your thinking process.

      Thinking success conditions your mind to create plans that produce success. Thinking failure does the exact opposite.

      Failure thinking conditions the mind to think other thoughts that produce failure.

    2. Remind yourself regularly that you are better than you think you are. Successful people are not supermen. Success does not require a superintellect. Nor is there anything mystical about success. And success isn’t based on luck.

      Successful people are just ordinary folks who have developed belief in themselves and what they do. Never — yes, never — sell yourself short.

    3. Believe Big. The size of your success is determined by the size of your belief. Think little goals and expect little achievements. Think big goals and win big success. Remember this too!

      Big ideas and big plans are often easier — certainly no more difficult — than small ideas and small plans.

    David J. Schwartz

    The “believe in yourself” mantra gets tossed around on so many motivational posters that it’s become a tired cliche, but there’s a reason that people who are actually successful still repeat it: it works.

    When you have deep belief in yourself and your abilities, you look at advice differently.

    Instead of seeing advice and thinking “that’s great, but it won’t work for me because (insert excuse here),” you begin to think “that’s great, here’s how I’ll adapt it to my situation.”

    When I started Groove, I saw a lot of companies with hundreds of thousands of email subscribers, and I would think of reasons why we couldn’t (or wouldn’t even want to) achieve the same.

    One of my mentors called me out on that early on; he saw right through my bullshit and told me so.

    It was a lucky break, because that’s when I finally started working hard to figure out how those companies achieved success in content marketing and what lessons we can apply to our own situation. And that’s when we started this blog, which has now become our biggest driver of growth by a wide margin.

    No, the World Isn’t Equal

    There are a lot of inequalities in every society, and we have a long, long way to go — and a lot of work to do — to solve that problem. It kills me to see it, and frankly, I don’t know the answer for how to fix it.

    But this isn’t a post about social justice.

    This is a post about what David Schwartz calls excusitis: making up reasons why you can’t achieve your goal.

    Do you or I have the same opportunities as the founder of a big, successful company?

    Of course not.

    They’ve spent years working hard to grow their business and create those opportunities. They’ve broken through the barriers that lay in front of you now.

    But instead of comparing ourselves to them and thinking about why we can’t, let’s study them and figure out how we will.

    It’s a mindset shift that I’ve had to work hard to make, because like many people, jealousy and excusitis come pretty naturally to me.

    But when you turn those excuses into challenges that you’re motivated to overcome, you change the way you approach your business and your life.

    Six Advantages of Hyperbolic Discounting…And What The Heck Is It Anyway?

    I was tossing around concepts for an article, when I decided to settle on the issue of hyperbolic discounting. True to my collaborative self, I shared the title with an industry professional, and here’s what he emailed back:

    WTF is HyerpWTF&$*R.. Love it.

    So, these are the reasons I chose the subject of hyperbolic discounting:

    • A lot of people have no clue what hyperbolic discounting is.
    • A lot of people are not aware of the vast ramifications that hyperbolic discounting has on society as a whole.
    • A lot of people do not use the power of hyperbolic discounting in conversion optimization.

    Hyperbolic discounting is a phrase that’s often met with a “WTF?!” or a confused gaze. Yet, it’s one of those concepts that can blow your conversion optimization to a whole new high.

    What Is Hyperbolic Discounting?

    Since the phrase hyperbolic discounting is despicable jargon, let me explain it in terms that even I can understand.

    Hyperbolic discounting happens when people would rather receive $5 right now than ten bucks in a month. That’s it. People value the immediacy of time over the higher value of money.

    unnamed

    Image source

    Expressed another way, hyperbolic discounting is a person’s desire for an immediate reward rather than a higher-value, delayed reward.

    now-later

    Stating it in such simple terms loses some of the complex nuances of the principle. You’re probably thinking, “Shoot, those people are stupid. I’d take the ten bucks. Who cares if I have to wait?”

    But, here’s the thing: Hyperbolic discounting is a cognitive bias, meaning that it is an ingrained mental snafu that defies logic and common sense. When hyperbolic discounting is framed differently, it has incredible power.

    The power of the mental hurdle adjusts based on the time involved. Here’s how one psychology site expressed it:

    If someone were to offer you the choice between $50 right now or $100 tomorrow, the latter would seem the clear choice. But, as the delay gap widens, the importance of the extra $50 quickly diminishes for most people, despite the fact that its actual value is constant.

    For instance, confronted with a choice between $50 today or $100 one year from now, would you still wait for the $100? Statistically speaking, the vast majority will take the $50.

    But, the pattern follows a hyperbola, so once a certain time threshold is crossed, the devaluing effect of time diminishes. For example, most will opt to take $100 in ten years over $50 in nine years.

    That’s where the hyperbola part of hyperbolic discounting comes in. A hyperbolic curve displays the effect of hyperbolic discounting, in contrast to an exponential curve.

    This is an exponential curve:

    hyperbolic-curve

    Image source

    This is a hyperbolic curve:

    hyperbolic-curve-inverted

    Image source

    Hyperbolically, the discount factor diminishes based on the amount of time that elapses.

    discount-factor-vs-time-from-present

    Image source

    Hyperbolic Discounting Truly Works

    Hyperbolic discounting isn’t some nifty gimmick that sometimes works and sometimes doesn’t. Our neurological cognitive selves are programmed in such a way that we are not immune to the tug of hyperbolic discounting.

    We can combat it by way of reasoning. However, the neuroscience behind the bias shows us that we can’t completely ignore hyperbolic discounting.

    The spate of scholarly studies hasconfirmed its validity countless times.

    google-result-studies-on-hyperbolic-discounting

    According to neuroscience, “The true objective of the brain is to maximize the rate of reward.” In other words, the brain has a built-in mechanism that produces a greater desire for present satisfaction.

    In the Journal of Neuroscience, researchers discovered that the “durations of saccades of varying amplitude can be accurately predicted by a model in which motor commands maximize expected discounted reward.” To explain this in layman’s terms, the brain makes discounting judgments reflexively and automatically. We don’t have to reason through it; we just want it.

    Only by analyzing a situation objectively using coherent reasoning power is a person able to ferret out the cognitive bias and squash it.

    Some scientists explain hyperbolic discounting through an evolutionary approach. If your loincloth-wearing hunter-gatherer ancestors found food, they would kill it and eat it right away. They wouldn’t let the scrawny antelope pass in order to possibly get a fatter one later. They would get the scrawny one now. One little antelope meal in the tummy is better than two fat ones in a month. By that time, the rugged hunter-gatherer would die.

    Imagine a dehydrated person traveling through the desert. Ahead, they see a small glass of water. If they deny the sip of water and keep going just a little longer, they will receive one hundred water bottles. What do they do?! Hyperbolic discounting impacts them positively, allowing them to sustain life by choosing a little bit now rather than a lot later.

    The Power of Now

    Copywriters, psychologists, and moms understand this phenomenon all too well. We want what we want, and we want it now.

    In the famous marshmallow experiment, Stanford psychologists led a child into a room and offered the child a single marshmallow. The treat was sitting there on a table right in front of them. If the child could wait fifteen minutes without eating the marshmallow, they would receive a second marshmallow.

    marshmellow-study

    Image source

    Yes, I know, borderline abusive.

    Although most children were able to keep their appetite in check, the study highlighted an issue that is known as delayed gratification. Ooh. Tough one! I know many adults who would have eaten the first marshmallow as soon as they saw it.

    Delayed gratification is the behavioral opposite of hyperbolic discounting. Delayed gratification means “making a choice which limits the ability of getting something now, for the pleasure of being able to have something bigger or better later.

    It’s a concept that goes against the ingrained ideals of culture — the whole “we want it now” idea.

    delayed-gratification

    Image source

    Our brains are wired for now. Neuroscientists have discovered that our brains light up like a Fourth of July night when we get stimulated by the power of something right now.

    when-brains-light-up

    Image source

    The brain uses hyperbolic discounting as a learning mechanism. The basal ganglia contain a responsive portion that learns by receiving immediate reward-based feedback.

    Scientists agree that the brain’s objective is to “maximize the expected value of reward.” The way the brain maximizes the expected value is by getting it sooner rather than later.

    Hyperbolic Discounting! It’s Everywhere!

    When was the last time you saw this technique in use? I just saw it, just now, on a site where I was conducting research for this article:

    instantly-popup-ad

    But, apart from sales gimmicks and advertisements, this cognitive bias has devastating effects elsewhere in life.

    Each year, hundreds of thousands of people receive coronary-artery bypass graft surgery. The surgery saves their lives. But, it saves their lives for the long term only if they apply the correct lifestyle changes. What kinds of changes?

    Here’s how the National Institutes of Health puts it:

    ongoing-care

    No smoking. More activity. Healthier diet. Faithfully taking meds. Tragically, however, “Ninety percent of those patients decide to forego survival and comfort in favor of the short-term pleasures of unhealthy foods and laziness” (source).

    Why? Hyperbolic discounting.

    Substance abuse? Yes, there’s another indication of the malevolence of hyperbolic discounting. Get high now. Forget about the results until later.

    Let’s take another massive example. It’s not as morbid, but it’s equally devastating: Credit cards. Credit cards push hyperbolic discounting to the max. A buyer can have something of value now! Just buy it on credit! Or, they can wait and save the money they end up paying in scandalous interest rates.

    Credit is one of the most damaging financial tools ever to enter the world. Millions of people are trapped in a vortex of debt because of the principle of hyperbolic discounting.

    I’m not here to rail against the credit card industry. I’m merely pointing out the vast and mind-blowing extent of hyperbolic discounting.

    google-serp-credit-card-danger

    Let me share another world-shaking manifestation of hyperbolic discounting in play. Why don’t most people save for retirement? Because there’s no immediate reward for saving for the future!

    americans-cant-save

    Image source

    If you could go out to eat at a nice restaurant for $200 tonight, then why the heck would you put that money in some retirement fund to enjoy when your 72?!

    But, all that waiting has its own hyperbolic curve, and it’s not very pretty.

    why-it-doesnt-pay-to-wait

    Image source

    You see what happens? It’s hard for people to deny themselves now in order to enjoy a reward later.

    Hyperbolic discounting is dreadfully powerful. I would never advise any marketer to exploit the hyperbolic discounting principle in harmful ways.

    I’ve used the above examples to show the incredible power of hyperbolic discounting, but I also want to use them as a warning. On a macroeconomic scale, hyperbolic discounting can have devastating results. On a smaller scale — conversion optimization, ecommerce, etc. — the results are innocuous, beneficial, and appropriate.

    Put Hyperbolic Discounting to Work

    Are you ready to harness this cognitive bias to the conversion machine? Keep in mind, this is tame stuff. There are no coronary bypasses or credit card retirement scandals going on here. This is honest work, and here’s how it’s done:

    1. Raise your price. Wait for the reward.

    Hyperbolic discounting gives you license to raise your price as long as you delay payment.

    When you offer to postpone the payment, the price of the item becomes less relevant to the buyer. Here’s why. As soon as they realize they don’t have to pay right away, the customer doesn’t think about paying. Instead, the hyperbolic power of the availability of the product dominates their thinking.

    Now, instead of thinking, “Wow! That’s expensive!” the buyer is thinking “Wow! I can have it now!” Based on the hyperbolic principle, the wow-I-can-have-it-now thought is going to win out.

    As soon as the price consideration exits to stage left, the buyer is ready to make their purchase, even if it costs them a lot of money (someday). You’re ready to profit.

    2. Advertise this: Buy now. Pay later.

    This is one of the most common forms of hyperbolic discounting in marketing. You may know it better as the “Buy now! Pay later!” technique.

    QVC.com is packed with every manner of marketing techniques. If you want to exercise your delayed gratification muscles, go check them out. Or not.

    spring-fever-picture

    PayPal’s infamous Bill Me Later program (name now changed) was built on the whole psychological principle of hyperbolic discounting.

    paypal-credit-screenshot

    Here’s the marketing message of Seventh Avenue. It couldn’t be clearer:

    • Send no money
    • Buy now
    • Pay later
    • Couldn’t be easier
    • Just start shopping

    Montgomery Ward does it, too.

    montgomery-ward-pic

    Lurking behind the message is the fact that you’re applying for a credit card. Remember what I told you about credit cards? Yep; built on the power of hyperbolic discounting.

    You don’t have to offer credit cards in order to use this technique. You can simply delay payment, allowing the user to make a purchase and wait to pay. It’s risky for you, but it could improve sales.

    3. Give an immediate gift.

    With hyperbolic discounting, timing is everything. That’s why some people refer to it as temporal discounting. The time element reigns supreme in the buyers’ minds. Rather than wait for any amount of time, they will act willingly to gain something immediately.

    In many cases, a simple and inexpensive gift will suffice. Sometimes, users will convert based on the promise of an immediate result, even if the full product is not available until later.

    EA Access gives gamers the ability to join a program where the big results aren’t available until later. Gamers are likely to convert, however, because they get immediate access to the vault.

    join-ea-access-today

    4. Charge a higher price for a shorter term.

    Have you ever noticed that some websites offer payment plans that don’t make financial sense?

    Here’s the type of thing they offer:

    • Buy 1 month: $9.99
    • Buy 1 year: $39.99

    Hold on a second! I can do math. I know that there are twelve months in a year. I also know that if one year costs $39.99, then one month at the yearly rate is only $3.33. So, why would anyone pay $9.99 for one month?

    Why you ask? Hyperbolic discounting, that’s why. The user wants to pay less now. They don’t want to pay more, even if it results in a discount over the long term. (That would be the case if one month cost $9.99, because then 12 months at that price would cost $119.88, so $39.99 would be a discount.) They are considering the issue from a temporal perspective, not a true value perspective.

    Here’s an example:

    xbox-one-text

    Grammarly uses this on their pricing page. Users can pay $29.95 each month, or $11.66 per month. Which one would any sane person choose? The 11.66, of course! Ah, but don’t forget about the framing effect. The way in which the price is framed heavily influences how the price is perceived. Thus, when considered as a $139.95 lump sum, users are tentative. They would rather save money now than save money over the long term.

    premium-plans-screenshot

    As a conversion optimizer, you can use this technique to your advantage. Users get to choose their payment method. You’re getting more value per order from the short-term pricing option, because buyers are heavily influenced by hyperbolic discounting.

    5. Pay for referrals right away.

    Online affiliate programs are very popular, but not very strategic. Here’s how they work:

    If customers refer friends, then they get money when the friends sign up. Here’s a screen grab from Payoneer:

    refer-your-friends-get-paid

    Nice, huh? Well, not really.

    Who wants to wait for their friends to sign up? Even though the payout could be big, the delay is insufferable. Remember, people want it now.

    This is how Brinkster does it:

    remember-there-is-no-limit

    Which is a more strategic approach? Pay people to refer their friends and don’t make them wait for their friends to sign up.

    If you offer, say, ten cents for every friend referred, then you can give the referring friend ten bucks. They refer 100 friends!

    If you stuck with the old pay-when-they-sign-up model, you may have to pay $10 for only a single referral. With the pay-now model, you can compel the referring friend to make 100 times as many referrals!

    The idea here is built off of hyperbolic discounting. A little reward right away is better than a big reward later on.

    6. Offer mail in rebates.

    Why do some retailers offer mail in rebates? The idea is that if you cut some coupon, scan your receipt, and upload them to some agonizing website, you might get a dinky check for a few bucks in the mail in 20-40 weeks.

    Is anyone going to do this? I’d rather pay $50 than be subjected to that agony.

    firestone-50-dollar-rebate

    Image source

    Who even has time for that? Do retailers really think that they’re doing you a favor? Of course not. They’re using hyperbolic discounting.

    Mail in rebates work for only a select few customers: the disciplined customers who never lose anything, change their oil at the dealership every 3,000 miles, save their receipts in alphabetized file folders, and iron their socks. In other words, not many people.

    The built-in draw of hyperbolic discounting is at work again. People are likely to buy the product now, thinking that they might get a discount in the future. More likely than not, that mail in rebate form will languish in a stack of papers until it expires. The retailer doesn’t have to pay anything.

    Conclusion

    If you want better conversion rates and smart marketing power, then this article was written with you in mind.

    I can speak from experience. My clients love me for this. Hyperbolic discounting may sound like jargon, but it’s pure gold.

    You can do a couple of things with this article. You can recognize the sinister power of hyperbolic discounting in your own life. (What about that retirement fund, hmmm?) And, you can exercise its impact on conversion optimization. Then, watch those conversion rates rise!

    About the Author: Jeremy Smith is a conversion consultant and trainer, helping businesses like Dow Chemical, American Express, Panera Bread, and Wendy’s improve conversions and strategically grow their testing culture and digital presence. Jeremy’s experience as the CMO and CEO of technology firms has given him a powerful understanding of human behavior and profit-boosting techniques. Follow him on or Twitter.

    Project management: An Interview with Lemonly

    Hello and welcome to the first in a series of interviews that henceforth shall be know as "The Nusii Interviews". Today I spoke to Becca Eisenhauer and Morgan Hauck who are both project managers over at Lemonly. Lemonly is a digital agency based in South Dakota in the US and they've worked with some huge clients. They've teamed up with companies such as LEGO, Salesforce, Marriott Hotels and more recently Entrepreneur Magazine. They specialise in visual data, otherwise known as Infographics, and I managed to catch up with them both this morning to have a quick chat...

    La entrada Project management: An Interview with Lemonly aparece primero en Nusii: Proposal software for creative professionals..