Episode Transcript
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[00:01:04] Hello, welcome back to rogue startups. This is episode 314. I'm your host, Craig Hewitt.
[00:01:09] I hope you enjoyed the last episode with Jason Cohen. Talked about unfair advantages, talked about when and how to know when you should kind of pivot into a new direction. I've gotten more feedback on that episode as a kind of guest format than I probably have any other episode since kind of the reboot about a year ago. So if you haven't listened, please do so. I think it's a great listen for kind of any founder out there, especially if you're kind of bootstrapped ish and in sass. It's just fantastic.
[00:01:38] Today I wanted to reflect a little bit on kind of some things that I'm seeing in coaching and advising some of my clients on the coaching side of my business.
[00:01:50] And I've come up with what I feel are kind of eight traits of a really, really great business. And this takes into account a lot of what I see at Kastos, where some things are really great about our business. A lot is really great about our business. I should be very grateful. But some things are hard, and I think some things are hard about our business that are kind of baked into the opportunity in the boat, if you will, that we're in. Right. And so I have thought about this a lot, and some of these things we've kind of tried to engineer into or out of our business. And I guess my goal here is to help you think about how you can do the same. Right. So how can we go to get like a ten out of ten score on all eight of these items to create kind of the perfect business model? Okay, so again, this is kind of getting data from my business and seeing data from kind of a dozen other businesses that I'm involved in kind of advising and triangulating that all into. Like, wow, if you, if you had all of these aspects to your SaaS business, you would have a really, really, really great opportunity. And this is where things like bringing on co founders or raising money or things like that, uh, would be something I would strongly consider. Uh, and so with that, let's dive into the eight aspects of a perfect SaaS business from my perspective. So first things first. Uh, all credit to this concept goes to Jason Cohen. So ironic that he was guest on the show in the last episode, episode 313.
[00:03:20] He has a fantastic microconf talk about kind of designing the perfect SaaS business. We will link to that in the description below. If you haven't watched or listened to that, please do so. It's absolutely amazing. And I, like many people, are taking existing work, kind of building on top of that, making my own, hopefully a little bit. Uh, and a lot of the kind of core foundations of this come from Jason's talk and the perspective and the experience that he has. I'm adding a little bit of my own twist and things that I'm seeing in the market these days that kind of just really make a really amazing business. And I'd actually be curious to hear what Jason thinks about that. So Jason, if you're watching, please comment on YouTube. I'd love to hear any feedback you have about this. Okay, so the first one is price. Arguably, maybe the biggest indicator of success and growth trajectory in your business is price. As you all know, at Kastos, we are a kind of b to prosumerish app with relatively price sensitive customers for our standard offering. And we start at $19 a month.
[00:04:22] Don't have to tell you that to build a many, many million dollar business at Dollar 19 a month means a lot of butts and seats, right? We have kind of 4000 customers right now, and that's a lot of, that's a lot of folks to handle. That's a lot of technical issues. That's a lot of support. It's just a lot of stuff going on inside the business to build a very meaningful business and to be able to continue to grow your outrunning churn of a whole bunch of people. And so $19 a month is not the perfect SaaS business. I would put this number at like $50. A $100 minimum to start with is what I would do if I ever did this again.
[00:05:02] I would start at $100 a month in my perfect SaaS business. I think Rob Walling and the state of independent SaaS and the Microconf crowd have some data around this, that the fastest growing companies are the ones that charge the most. Pretty intuitive, but maybe not to the extent that it's just very clear like that. So if you're not charging a lot already, find a way to charge more.
[00:05:27] That's kind of the lesson here. And us at Castos, how we've kind of engineered this is two ways. One is our castos production services. So we're charging $1,500 a month for our productized service. That's where we do end to end podcast editing and production, audio, video show notes, video clips for weekly episodes. So if you're interested, castos.com productions, we'd love to chat and see if we're a good fit for helping you with your show. And the other is with our enterprise, podcasting solutions, mostly for companies doing internal company podcasts.
[00:05:58] These are tens and tens of thousands of dollars for annual contract value. And so we do have this kind of dual funnel going on. And I don't know if, like, a dual funnel is better than just a single kind of higher end funnel, but. But find a way to charge more. And so while we didn't start off great like this, we started off at $15 a month when Kastos first launched. We have gotten better about increasing our ARPU over time to where today it's about $30. So, still kind of, if you consider the dual funnel still kind of weighted pretty heavily on the low end, but definitely kind of the higher end is bringing that up a little bit. Okay. The second one is it should be core to the function of a business. So I think it goes without saying that a perfect SaaS business should be b, two b. We're not even going to talk about b, two c. But it should be core to the function of the business, meaning it's not elective. What's the analogy? Like, you want to be selling painkillers, not vitamins or not skittles or whatever? Again, I think that's kind of obvious. But to go one step further, it's like if you ripped this out of the business, the business would just be toast entirely. So we're not talking about a CRM or marketing automation or podcast hosting or calendar scheduling or electronic signature. Hey, Derek and Ruben.
[00:07:20] But we're talking about, like, a tool like Gemdesk, right? Tiny seed company.
[00:07:25] Gemdesk is the software that gems and martial arts studios run on. Right. They literally can't operate their business without it. And this makes the product just super sticky. I don't know for sure, but I would suppose that the churn of a product like Jim Desk is super low or probably negative. So how sticky is your product, how essential and core is it for the operation of a business? Again, we'll put this on a scale of one to ten. For castos, ours is probably like a three. We're sticky for some other reasons. I'll talk about in a minute, but engineer the amount to which a company relies on your product and I think you'll be better off in the long run. This one kind of addresses the churn issue more than anything. The counter to that is most businesses that are already existing probably have a solution for this already. And so the switching kind of friction and cost to them will be higher. We'll talk about that in a minute. Okay. Number three is I want to involve payments in my software and my platform. So the money should run through me in some way. So this could be something like at Castos Commerce or at Castos, we have Castos commerce and castos ads both ways where we help podcasters make money. And the thing I talk about with our team is this moves us from like the, the liability side of a balance sheet in our customers minds to the assets. Right. Kastos makes me money. Thats awesome. Right? Im never going to leave something that makes me money. But how can you get even further on this? Right. So think about Jordan Gall. Right. Hes been involved in several businesses where hes making people money. Hes involved in the transaction. Theres probably a lot of ways that you can do this. Laura Roeder right now with her company paperbell helping coaches manage their business, shes involved in like executing the payment, probably taking a little bit of money off the top. So each transaction that goes through the system there, I suppose, I don't know. But hey, Laura, if you're listening, she's taking a small percentage of that transaction. That's cool because, and we'll talk about expansion revenue in a bit. But like the more customers you get, the more, you know, kind of critical mass going on in the business, the more money you make just by being there. You don't have to go get more customers as your customers grow, either they pay by seat or some kind of usage or with pricing and payments going through your system, they just get, you just get more money from them if you're taking a quarter of a percent of every transaction. So payments going through the system kind of goes to the business criticality of the business. But this is a really big one again at Kastos. I think we've engineered this into the product and into the platform a little bit. I think this is probably one of the biggest areas we have to grow as a company is becoming more that asset in the minds of our customers. Okay, number four is a high switching cost. This might be kind of counterintuitive to you. You might say, hey, I want people to be able to come and go real easy and the coming part of it is great, right? I want people to come and sign up for my product, get value really quickly. What I don't want them to do is leave. I would suppose that overall, if you looked at some kind of metadata that I'm probably not smart enough to be able to understand, but there are people out there who can. It's better for you to have a business that has lower kind of customer velocity and it's easier for you to acquire them than it is for you to prevent them to leave, if you know what I mean. So I want to think about back to the business criticality, but like, how can my product be so deeply embedded in a company that the thought of leaving is just horrendous? So not necessarily the second point I made where it's like it has to be critical to the business. But even if it wasn't, that leaving would be a giant pain in the ass. I think about tools like userlist. So Jane and Benedict, hey, their email marketing, marketing automation for SaaS companies, the way they do this is they get their fingers into a business by being deeply integrated into a SaaS product. So all sorts of like events and triggers going from a SaaS application into user list to fire appropriate emails at the right time. If you're a user list customer and you've gone to the trouble of integrating your product into user list or user list into your product, you're not going to leave just for $20 a month or something like that. So they have some pricing power at that point and churn is going to be really low as a result.
[00:11:49] Okay, number five is expansion revenue. This is the one that I so wish we had within Kastos. And the fact is we just don't. The pricing model and kind of the customer expectations and podcast hosting is that things should be relatively unlimited. And as a result, we just don't have a lot of expansion revenue. I'd love to hear from some of my competitors if they do. I don't believe they do, just looking at their pricing tables. But in our industry, it's pretty unlimited. You have an account and you can kind of do what you want there. We have tried to engineer this in a little bit with things like download limits or per seat or some feature gating, but it's pretty rare for a customer to come in over here in our essentials plan and then go to growth and then go to pro. It happens a little bit, but not as much as some other business models. I'll give you a few avenues that we could think about here. One is talked about user list, like email marketing or marketing automation, right? Or something like amplitude, like how many things are going on email subscribers or events or something. Podcast downloads, maybe, to where as a customer stays longer and becomes more successful, they just pay more over time. That's cool, because then you don't have to have another butt in the seat to raise your MRR. The other one I like is per seat. So the classic one here, I think, is a CRM, right? I start with one person, and then I get two or three, and sooner or later I'm paying HubSpot $2,000 a month because I got to have this stuff and I got to have it for all five people on my sales team. So either way, and there's probably a couple more ways that you could bake expansion revenue into a pricing and a business model for your SaaS business. But either way, do this. I think most of these are kind of negotiable, but price point and expansion revenue are just not negotiable for me. Right. So start at $50 a month and have expansion revenue. You can build a $5 million SaaS business much easier than if you didn't. I was going to say pretty easy, but pretty easy, right? If you have a good product, you know how to market. You start at $50 a month, and you have expansion revenue built in. You can get there. Okay, number six is something we actually do really well. And it's a total coincidence. It was not by design, but it's something we do really well. And it's just kind of part of what we are as a podcast hosting platform is our customers continue to get value from our product, even if they're not using it. Right? So think about, you have a podcast, right? And my old podcast with Andy Baldacci, it's called Seeking Scale. We did about 100 episodes. And if I were a paying Kastos customer, I'm not, because I know somebody who works there. But if I was a paying castos customer, I would be paying $19 a month to Castos to keep that podcast live because we got 100 episodes out there and some really great shit, and I want that to continue to live on. Right. But if I cancel my account, all that stuff goes away, and I don't want that to happen. Right? So how can you engineer your product and your value prop and your business to where if somebody comes in and does some amount of usage and then stops, they still want to keep paying you to keep whatever that is alive in the podcasting space? I'll give a counter to this, which is our friends at Squadcast, right, another tiny seed company. They've exited their business. But I know that if I wasn't recording podcast episodes anymore on Squadcast, I wouldn't pay for Squadcast because I don't continue to get value from Squadcast if I'm not recording new episodes. So just think about, like, how can you have this kind of anchor of value that even if they're not adding on to that anymore, they still want to pay you money?
[00:15:30] Okay, number seven is some way, from a product perspective, and this is the only product kind of step in here, but some way to differentiate yourself from the rest of the competitors, right? And so I think in our kind of bootstrappy world, the one example that I know about this was Rob walling and drip when they built the workflows feature into drip, right? Rob says this was like the game changer and going up against existing tools at the time, especially like Mailchimp, that just didn't have the ability to, in a visual way, build rules around kind of when and how emails are sent and customers are gonna taken through a customer journey was a game changer for them. And so I think you need some kind of like, thesis or hypothesis when you're coming into a business and you're like, I can make a big difference here because I can be different. And different is always good. You know, we had this a little bit when we started kastos, where at that time, the competitive landscape was pretty different. It was basically like Libsyn blueberry, maybe simple cast. And at least the first two are not amazing tools from a product perspective. I think anybody who's used them would say, like, they get the job done, but they're just not great. And our hypothesis was like, along with our seriously simple podcasting plugin, we can just build a better mouse trap, right? So I think you do need to have some ability to have an angle on the market and a product and a way you solve a problem that's different, probably will not be defensible, just so you know. And I think that's like something that we're seeing, right? Is like, we built a better mouse trap, for sure. Since then, in the last few years, some other people have come in and made mousetraps that are pretty good, too.
[00:17:18] And so this is not going to be defensible forever. I think that's why SaaS companies continue to build and build and build and build and build, even as, like, the product is done, you need to continue to innovate from there. Okay? And the last one, number eight, is there needs to be an established need in the market. I was on a call with a founder today talking about how they said their audience or their potential customers aren't really looking for the solution. And I was like, man, I get you. Because we're in the same boat a little bit with our internal company, Podcast solutions, is we get a little bit of inbound interest from this, and that's kind of the only way that we know to sell this. It's hard for us to go outbound with a product that solves a problem that people don't know or don't believe that they have. And so if you're at a company and everything's hunky dory and your communications are great and your employees are happy and your diversity and inclusion initiatives are humming along, then you don't have a problem to which an internal company podcast would be a solution. And so me approaching you saying, hey, do you want this thing? You're like, why would I. Why would I need this thing? I don't have the problem that you're trying to solve.
[00:18:32] And this is, you know, podcast hosting is an established market with a defined need. But this solution of internal company podcasts that we're selling to some people is, is not. And so I think I always get scared when people say, like, oh, we're entering a new realm and we're solving a problem that's never been solved before. I'm like, man, you, what you have to do is you have to take a customer on every single step of the customer buying journey from, like, completely unaware to problem aware to solution aware to brand aware to most aware and ready to buy. That's, that's just fucking hard, right? As opposed to if you are in a defined space, they go, cool, I need a CRM. Okay, it's HubSpot or salesforce or close or atio, which 01:00 a.m. i going to choose, right? And so, while maybe that is in the face of some of the things I talked about previously, I do think that especially at the beginning, or especially if you're completely bootstrapped, you just don't have the resources to go out and create a market and create a movement and define a space. So just don't do that. That would be my advice.
[00:19:39] Cool. So I hope this is helpful in sharing a little bit about how I think about designing the perfect SaaS business. The eight points that I believe you should consider engineering into an existing business. Or if you're starting from scratch, try to tick as many of these boxes as you can. Again, I think this comes a little bit from my experience in running and growing casdos. We've definitely run up against some growth challenges, I think because some of these goals and these parameters just haven't been met. But also in chatting with other founders and advising kind of about a handful or a dozen companies, I see ooh, these things make it really easy and not having some of these things make it really hard. So I truly hope this is helpful.
[00:20:22] If you have any questions comments, please leave them in the description below. If you're watching on YouTube if you want to send us an email podcastups.com dot thanks so much to our sponsor, churn key. They're absolutely amazing. Amazing product, amazing people. If you're a SaaS company who values retention and growing and not letting your customers churn, or knowing why they are when they do, please check out churn key. It is Churnkey Co.
[00:20:50] Amazing tool. Can't recommend it enough. This is Craig Hewitt signing off. Rogue startups episode 314.
