Episode Transcript
[00:00:00] Hello, welcome back to Rogue Startups and Happy New Year. Recording this just in time on New Year's Eve 2024. And as you will be seeing this on YouTube and hearing this in your podcasting app, Happy New Year to everyone. I hope that 2024 was amazing for you and that the prospects and the plans that we all have for 2025 are even better. And with that, I wanted to not do the typical like oh, year end review video or my predictions or plans for the coming year, but to, as we like to do on the podcast here, distill things down to that next abstraction layer and talk about just business in general. Like how is the business? Not how am I doing or how is the business doing, but how is the business, right? A huge part of the potential success, I think for most of us in business really distills down to the business that we have, right? Is the business that we have in the vehicle that we're in a good one. I talked with Dan Andrews on a previous episode about this and we had a bit of a grade, our business session, therapy session, if you will, right there in the moment. And I was actually chatting with one of my coaching clients earlier today about this and I started grading my business Castos and gave it a grade and he's like I'd love to hear an episode about this. And so that's what this episode really is. Taking my conversation with Dan, my thoughts on my current business and a previous episode I did of the show. So it was episode 314 or I called it the perfect SaaS business, right? A really good clickbaity title. But I had eight criteria for what makes a good and a bad SaaS business. And so I'm going to grade my business on these eight criteria and and I encourage you to think about your business. If you don't get a 10 out of 10 in each of these eight criteria, maybe think about like what you can do to optimize it. Or in some of these cases it's just like, hey, this just ain't an optimal aspect of this business and that's fine. Let's not spend a bunch of effort and energy trying to polish a turd right to optimize this thing that can't ever be great. Some businesses just aren't ever going to be high arpu businesses. Some businesses aren't ever going to be low churn business. Don't try to fight against that, but to lean into the big opportunities that you have and the levers that are easy to pull. Okay, so I have These eight criteria or aspects of what I think are really good SaaS businesses, I'm going to grade myself and my business. Kastos talk about what I think the overall potential of our business is. Not dollars, because I don't talk about dollars in my business, but overall capacity or potential and would encourage you to do the same is like, hey, I'm 5% of reaching my potential. I'm 50% of reaching my potential. I'm almost at the potential of my business. And what does that mean for you as we look forward to a new year and a new beginning and all this strategic thinking that we always do in the new year? Okay, so the first one is pricing, right? Are you charging a lot? Right. That is the number one predictor of high growth businesses across all the kind of benchmarking studies you look at from, from the ones that Rob Walling does to folks like Chart Mogul. Folks who charge more money grow faster, right? So how does your business do there? And I would say charging a lot means like starting at 50 bucks, right? Like you got to start at least 50 bucks an account, right? You might have multiple seats, whatever. 50 bucks to get your average revenue per user or average revenue account to 50 bucks or more. So how does your business do there at Kastos? We sell a couple of different things, right? We sell regular old podcast hosting like this show uses to disseminate our podcast to Apple and Spotify and to all of your phones and get analytics and all this kind of great stuff. Monetization. How does that do on that application and that customer type? We do pretty poorly. Ours is about 28 bucks, right? So not getting the mark out. On a scale of 1 to 10, I'd give us a 3. Right.
[00:04:13] We also have our Castos production services which start at 1500 bucks a month. So that really is great, right? That's way more than 50. That is a service. So the margins and the scalability of that is different than pure play SaaS, but we definitely have that. We also have enterprise level customers that we have that are tens and tens of thousands of dollars a year. Folks like the London Stock Exchange or customers of ours, right? So we are selling a couple of different price points, a couple of different things to different types of customers. In and of itself, that's not great. But that's the date we brought to the dance and that's what we have. So overall, in the am I charging enough bucket, I would say if I have to give this a grade of like 1 to 10, I would give us a 6 probably because the place where we make the most money is, doesn't do well in this category. We have some enterprise clients and about 80 folks on the production side that, that pay us hundreds of dollars a month.
[00:05:15] And so that's pretty good. But the services don't scale and aren't profitable on a unit basis as much as SaaS is. So for the core thing that we do, we actually don't do great here, but we have these other things that bolster it up a little bit. So as I mentioned, designing the business to increase the things that aren't great and inherently with your business model is something we should all think about, right? Like if by nature this one aspect of our business isn't great, what can we do to affect it? Right. How can we build in upsells, how can we design features to increase retention? How can we do self serve or demos or whatever to increase trial to paid conversion? So for us we've done a lot of work to get that amount people pay us every month up. And at this point I give it, I give it a six out of ten. Okay, the next one is churn, right? Do you have a low churn business? This one's pretty obvious. Acastos, we are extremely lucky to have very low churn. I know there are direct competitors of ours in our space that have very high churn. Why that is, I think comes down to the type of customer that we sell to. Like, does it mean like our WordPress integration? Because an integration like that to your website, does that kind of bring along folks who will churn less often? Probably. Do we also have a little bit more premium price point than some other people in our space to where they would experience higher churn. Like we don't have free. Yeah, probably that too. So like our product is very good also. Right. So like people don't have technical issues with our product.
[00:06:44] So I'll give us like a, I'll give us a 10 out of 10. I'll give us a 9 out of 10 on churn. And that's just regular altern. I'm going to talk about expansion revenue and negative churn opportunities in a minute. But for regular old customer retention, I give us a thumbs up. I'll give us a 9 out of 10.
[00:07:03] Including some kind of payments module or modality into your business is the next item. So think about one of the new tiny seed companies. Inksup is like backend office management solutions for tattoo parlors. And one of the things they do is they're like the point of sale solution for these folks and they also do financing. Right. So they are involved in the transaction for these tattoo shops and actually like moving money through them.
[00:07:32] Does this exist in your business? Are you making money for your customers not just being an expense? Right. So at Kastos, we definitely have some of this. We have a few different ways that our customers can make money from their podcasts through Castos ads, Kastos commerce and donations, paid subscriptions and private podcasting, all different ways that folks can make money.
[00:07:53] I think by the nature of podcasting, this is the minority of the customers and the shows out there. So while this happens, it doesn't happen all the time. And the fact is that most folks, while this is like the dream of every podcaster, is like, oh, I'll just talk and get paid a whole bunch of money.
[00:08:12] It just doesn't happen that often. Right. The power curve, I think is what it would be called, is like very few people make a whole bunch of money from direct monetization, things like this. A whole bunch of our customers make money indirectly by using podcasting as a way to sell more of their products and services and grow their business like I do with this show.
[00:08:32] But not a lot of folks make a whole ton of money from ads or subscriptions or donations. So while we have this, does it apply to most of our customers and is it really integral into the revenue stream of their business? No, unfortunately. So I'll give us a 4 out of 10 on this one.
[00:08:50] The next one is high switching costs. Like, how integral is this to your business?
[00:08:57] Really interesting question.
[00:08:59] Is podcast hosting super integral to, like, the function of someone's business? Probably not. Is it hard to switch your podcast to another host?
[00:09:11] Also? Probably not. But is it worth it in a lot of cases? Also probably not. So while we don't have high switching costs, we do have high retention in that if you want your podcast to continue to exist, you have to keep your subscription with us alive. Just like if you want your WordPress site to continue to exist, you got to keep paying WP engine. They probably experience low churn for a similar reason as us. And that's why, like, the classic example is like, you don't need ahrefs all the time unless you're doing SEO every month. But they build in things like rank tracking and things like that to make the product more sticky so you get value over time even if you're not actively involved and engaged in, like, the thing that this does on an ongoing basis. So a question for you might be like, if you are a tool that people may use and not use, how can you build functionality into the product so that they continue to get value even if they're not doing the primary thing that your tool does all the time? So that's the next one.
[00:10:18] The next one is like, standing out by having unique features and some kind of, like, technical advantage. I think this one is really. Sorry, on the last one, I'll give us.
[00:10:30] I guess I'll give us about a six. Right? Like, we really long, really high LTV folks stick around for a really long time, probably because the product is good. Um, and switching costs is probably perceived to be higher than it really is. Truth is, switching podcasts is pretty easy, but it's also a hassle. And I don't think anybody does it better than we do, really. So maybe that's why folks stick around. Um, okay, so. So the next one is like, having unique features and some kind of technical advantage. I'll throw out a red flag here, and it is that this is.
[00:11:02] This is very flippant, right? In this technological world, right? As ChatGPT loves to say, like, the barrier here is actually pretty low, even if you think it's high. Right. The ability for someone to recreate your product and kind of decimate your technical moat is really significant. So I wouldn't bank on this being the thing that you believe makes a great business.
[00:11:28] It just doesn't. Right. Like, creating great product is easier than ever. What's harder than ever is creating. Creating scalable and repeatable and profitable marketing channel, which is something we're going to get to in a minute. So, like, how well a job do you do? There's. And what can you do to optimize that? But do you have some technical thing that makes your product better than everyone else at Castos? I would say our WordPress integration absolutely is unique in the space. And so for some folks, we are really unique and really amazing. Aside from that, I gotta say, like, functionally, we do about the same stuff as many other hosts. Like, around the edges, there's definitely some stuff. But something that we've learned, and I would just pass this on to you, is that what we think is important and what we think is valuable to our tool and for our customers may not be what our customers feel is valuable too.
[00:12:21] And I'll just clarify that by saying I was looking in Reddit at what podcast host would you recommend? And somebody's like, oh, Castos is great, but sometimes I feel like they have all this other stuff they want to sell Me, um, and really all I want is just a place to upload files. And I was like, wow, that's so interesting. Like, we think, oh, man, if I give more value, customers are gonna feel that it's more valuable, right? And they're gonna wanna pay more and they're gonna stay and stuff, but really, they just want this one really specific thing. And so while we think, hey, maybe I have this really awesome competitive advantage, maybe your customers don't care, right? Maybe they just want to run this one report. And the fact that you do all these freaking reports and customizations and all this kind of crap just doesn't matter. So, like, not just do you have this technological advantage, but is it valued by the market in a significant way? Next one is churn and expansion revenue. I mentioned gross revenue churn previously. Like how many folks are sticking around. The other side of that is how many folks are expanding within the product to pay you more money each month. It's the holy grail net negative revenue. Churn is like the thing that we all aspire to, where you keep the same number of customers. The ones that pay you more money is greater than the folks who are leaving each month.
[00:13:38] You would see this in something like email service provider or a CRM where they're based on contacts, or some of these AI tools that are based on kind of usage and credits.
[00:13:49] We don't see much of this at all. We have very little expansion revenue baked into the business. And it is what makes growing the business hard. I think there's two things, if I'm really honest, that make growing Castos really hard. One is we charge 19 bucks a month for the vast majority of our customers. And the other is very few of them pay us more money over time. They pay US$19 a month for years and years, which is amazing. They don't churn, but not a lot of them go from 19 to 49 to 99 to 499 or something like that.
[00:14:16] And if you imagine the ideal SaaS business being, hey, we can get somebody in for free, maybe even, and they pay us a little bit. And as they get successful, like the.
[00:14:25] The investment that I as a company make into customer success means not just retention, but expansion, then you really got something magical. So I give us here a 2 out of 10.
[00:14:40] We have a very little bit of it. We have worked quite hard to, to build into the product functional upgrades like, hey, access to better analytics or YouTube republishing and things like that, which are really cool. And we're continuing to like everything we're adding onto the product now is designed around expansion revenue, but it's not really usage based expansion revenue like email subscribers or people in your CRM or credits for AI and usage and things like that. It's really like just upgrading from one tier to the next.
[00:15:12] But that's where we feel like a big opportunity is because we got a whole bunch of customers. If we can get them to pay us 30 bucks more a month, that's a really great way to grow a business. Business. So I give us a, I give us a 3 out of 10 on this one because we have a bit of it, but not nearly as much as I would like. And it is probably the single biggest thing that makes growing a business like this really hard. Kind of past the point that we're at. Okay, number seven, is there an established need in your market? I think the thing that most of us don't want to do is try to define an entirely new market or an entirely new kind of niche within a market. So do people understand what your thing is and that you are just another provider for this thing that they, from a mental model perspective already understand? The answer to this should absolutely be yes. And this is pretty much binary.
[00:15:59] Is this something that, that like people understand and that they know that they just want to buy your thing? Yes, we're a CRM. Great. You're not HubSpot, you're Atio. Okay, great. I'll just go buy Atio. That's fine. So. So like that, that really needs to happen for Castus. I'll give this, I'll give us a 10 out of 10 on this. There are definitely people that do the thing that we do. We do it in a slightly different, better way, but we fit into the market really well here. And I'm really glad about that. And the last one is different from my previous video. But I think this is really important is do you see a path to a repeatable and profitable customer acquisition model? There are some businesses out there that would be amazing businesses, except for the fact you can't get customers. And this is the thing that kills most businesses, right? Is like, I have this great idea, I have this great product, but I have no way to get customers. They're not easily identifiable. They don't all look the same in some way that I can just go find them on Instagram or cold email or SEO or something like that. Can I afford to do the thing that I have to do to acquire these customers? Maybe that's the other part. It's like, hey, if you're charging 19 bucks a month, yeah, I have a pretty hard time running LinkedIn ads. Is that. And if LinkedIn is the only place where folks are living, do you have the ability to go reach folks there? So this is, this is a kind of aggregate endpoint, maybe. But, like, did the unit economics of your business make sense? Right. Can you profitably go exercise marketing activities to acquire customers profitably in a reasonable time span?
[00:17:34] I'll give us a five out of six out of ten. I'll give a six out of ten on this one. Because we do to a large extent through content marketing and SEO and partnerships and integrations, but we haven't been able to make those kind of bigger ticket things like paid acquisition, although we're working very hard on it right now, and we're seeing some really promising insights. And I'll have much more to share on this in future episodes, but things like conferences? No. Outbound and cold email and things like that for sales? No. So if you go back and look at the SaaS playbook, Rob has the chapter on kind of marketing marketing initiatives and channels, right? Like, you throw half those out when you don't charge enough.
[00:18:13] And that makes this kind of aggregate endpoint of can you effectively and cost effectively and effort effectively go find customers where they are and do that in a repeatable, scalable way.
[00:18:26] For us, the answer has been like, and so I'll give us whatever five or six out of 10 on that because we have to a bit. We have exhausted some of that, if I'm really honest. Our growth has slowed because we've reached a local limit on what we think we can do with like, SEO. And like, we're still working on it. We're still doing quite a bit of content in SEO. But like, we need to find another way that is quite cost effective to get new clients because we just don't charge enough to be able to afford some of these other customer acquisition channels. So that is a huge limitation to the growth. And again, like, the total capacity of the business. When you throw out some of these customer acquisition modalities, I do think you're a bit handicapped in saying, like, hey, I can only do these things. And so I only think I can grow to this point, which, if I'm perfectly honest, is like, where I am. It's like, I think we have potential to grow from here. I think the business could double, but the business can't be $50 million a year. Right? So, like, where do I think the business is on that kind of grading scale. I think in the episode with Dan, I said I'd give us, like, a B, right? It's a B kind of business, which is great. And, like, freaking pays my mortgage and my kids, and we're all happy and we go on vacation and we have employees and everybody's happy, and that's all great. It's not going to be the next HubSpot, right? It's not going to be this massive, huge business. Like, is that what I want? Yeah, that's what I want. I want this big old fucking monster business that's going to pay me a huge chunk of money one day and realizing, like, hey, this is a good business. Like, this isn't a great business. And so the question really then is, like, can we engineer this into something great, right? Or do I just go, cool, like, I got a double here? And that's awesome, right? That's. I should be really super grateful for that, and I am super grateful for that and everything that. That this whole environment and ecosystem and Tiny Seed and you all listening and this podcast have afforded me. But if I'm honest here, at the end of the year, I do look at this and say, like, man, I want, like, a lot more. I don't want a little bit more. I want, like, a lot more. And so I go through these really critical exercises of looking inwardly at myself and my business and my opportunity and say, am I going to spend another year to get 20% more? Or if you look at your business and say, like, the opportunity here just ain't big enough for me to devote this massive amount of effort in my time, you know, I need to figure out a different way to achieve that goal for myself and for my business and for my shareholders, if you have them, or whatever. And so I'm not saying that's what I'm doing. I'm not saying anything here, but I am saying, like, you need to make sure that your goals and your opportunity are aligned to be able to give you the outcome that you want.
[00:21:13] They're pretty succinct. So I hope this interesting. I hope this is helpful. I didn't keep track of where we score on a. Whatever out of 10, but I gave us a B. So I guess we should be like a 80. 80 out of 100 is probably what I would give us, which is a pretty good business, if I'm doing the math. Maybe we didn't do quite that good, but I give us a B. It's an amazing business, and I feel very fortunate and I feel very fortunate to be able to share this with you all as well. As we go into the new year, gonna have a pretty solid mix of episodes like this where I share what I'm up to, what I'm learning about business and myself and being a founder, and then interviews with amazing founders who are doing amazing things and things that we all can learn a lot from and look forward to sharing that with you down the road. So Happy New Year's to everybody, and here's to a great 2025.
