LEVELING UP Patrick McKenzie, Starfighter

What It’s All About

Flying Geese

Flying Geeks

(Make much better mistakes!) Don’t Make Our Mistakes

The Tutorial Mission: Your First Business ¨  Ship it. Ship it. Ship it. Ship it. Ship it. Ship it. ¨  Optimize for learning over perfection. ¨  Start accumulating unfair advantages for later businesses. ¨  Cover “minimum viable financial goal.”

How You Know It’s An Advantage? ¨  People tell you you’re anomalously good. ¨  Watch other people around you in the community. Note where you’re doing particularly good on something useful. ¨  Use your growing understanding of your business to project what X would do in another, larger business, or a business with advantages you lack.

The Case Against SaaS For Biz #1 ¨  Huge barriers to shipping and keeping it in the market. ¨  Hard to sell and market without any pre-existing foothold in industry. ¨  Long slow SaaS ramp of death.

The SaaS Grind $0.00 $200.00 $400.00 $600.00 $800.00 $1,000.00 $1,200.00 $1,400.00 Appointment Reminder revenue (first 18 months)

The Glide Path To SaaS ¨  Plant a flag on the market with an e-book, WordPress plugin, etc. ¨  Start collecting email addresses. ¨  Launch a productized consulting business. ¨  Gradually titrate up the amount of software offered.

Typical Bootstrapped SaaS Pricing ¨  $29 ~ $49 – Tier 1, some foozles ¨  $99 – Tier 2, even more foozles, maybe a special feature ¨  $249 – Tier 3, lots and lots of foozles

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

Founder / product / market fit is one of the best advantages you can possibly have. “The Peldi Rule”: Love What You Do

A Missed Opportunity BCC AR Consulting Starfighter Productized Consulting

Level Up In… ¨  Scale of problem you’re attacking. ¨  Engineering acumen brought to bear on target. ¨  Sales/marketing techniques. ¨  Sophistication of business operation.

AR Revenue Curve Was Depressing $0.00 $1,000.00 $2,000.00 $3,000.00 $4,000.00 $5,000.00 $6,000.00 $7,000.00 $8,000.00 $9,000.00 12/2010 1/2011 2/2011 3/2011 4/2011 5/2011 6/2011 7/2011 8/2011 9/2011 10/2011 11/2011 12/2011 1/2012 2/2012 3/2012 4/2012 5/2012 6/2012 7/2012 8/2012 9/2012 10/2012 11/2012 12/2012 1/2013 2/2013 3/2013 4/2013 5/2013 6/2013 7/2013 8/2013 9/2013 10/2013 11/2013 12/2013 1/2014 2/2014 3/2014 4/2014 5/2014 6/2014 7/2014 8/2014 9/2014 10/2014 11/2014 12/2014 1/2015 2/2015 3/2015

Those Interminable Middle Years $0.00 $2,000.00 $4,000.00 $6,000.00 $8,000.00 $10,000.00 $12,000.00 7/2006 9/2006 11/2006 1/2007 3/2007 5/2007 7/2007 9/2007 11/2007 1/2008 3/2008 5/2008 7/2008 9/2008 11/2008 1/2009 3/2009 5/2009 7/2009 9/2009 11/2009 1/2010 3/2010 5/2010 7/2010 9/2010 11/2010 1/2011 3/2011 5/2011 7/2011 9/2011 11/2011 1/2012 3/2012 5/2012 7/2012 9/2012 11/2012 1/2013 3/2013 5/2013 7/2013 9/2013 11/2013 1/2014 3/2014 5/2014 7/2014 9/2014 11/2014 1/2015 3/2015 AR BCC

Ending A Chapter

Deciding When It’s Time To Move On ¨ Business not helping you achieve goals. ¤ Live / Love / Learn ¨ You’ve stopped accumulating marginal advantages. ¨ It’s “clearly time to go.”

Options For Pruning Portfolio Projects ¨ Shut it down. ¨ Put it into maintenance mode. ¨ Sell it.

What Does Maintenance Mode Mean?

Anatomy Of A Saleable Business ¨  Goldilocks zone for revenue / price. ¨  Low ongoing time involvement from founder. ¨  Low-risk that present revenue evaporates. ¨  Growth in market. ¨  Technical risk mitigated.

Early Decisions Make Selling Easier ¨  Business opportunity: enduring and stable/increasing ¨  Technology stack: something simple and well understood ¨  Business model: fat margins, ideally recurring revenue ¨  Traffic sources: diversity and defensible ¨  Founder involvement: variable as desired

SaaS businesses typically get 24X to 36X of average month’s seller discretionary cashflow (SDC) Let’s Talk Numbers

Substantial One-Off Money = ?

Solo Founder -> CEO

Starfighter ¨  Online games (CTFs) engineers play, for fun, by programming. ¨  We passively identify skilled engineers. ¨  We contact them and ask about background/goals. ¨  If appropriate, introduce them to hiring managers. ¨  If they take a job, we earn a commission.

What does a CTF look like?

What does a CTF look like?

Why was this impossible before? ¨  Co-founders: met them as a direct consequence of doing things on my own. ¨  Starfighter is tremendously technically ambitious. ¨  We used reputational capital to bootstrap sales cycle. ¨  Self-investment required; would have been painful before.

Does Starfighter Pass The Peldi Test?

Rule #1 at Kalzumeus Software was, literally, “We never, ever, ever crunch.” Guess what happened the last three months. Remember To Be True To Yourself

Thanks for listening ¨  patrick@kalzumeus.com or @patio11 ¨  https://training.kalzumeus.com (mailing list) ¨  Software Conversion Optimization course upcoming – send me an email when it launches and it’s yours. ¨  http://starfighters.io ß seeking players and clients, launching early May two weeks!

Optional Sidebar About Selling

Pre-requisites For Sale ¨  Understand your numbers cold and be able to document them all. ¨  Isolate assets to be sold from the rest of your business. ¨  Minimize founder ongoing time commitments. ¨  Block off a few months.

Short answer: yes. Should You Use A Broker?

Process and Timeline ¨  January / February: Lay technical and organizational groundwork. ¨  March: Start working with broker in earnest. ¨  Late March: Buyer identified. ¨  April 2nd: Contract executed. ¨  April 8th: Wire transfer hits bank account. ¨  May 3rd: I’m freeeeeeeeeeeee.

Process Drill Down ¨  Gather data on everything. Answer ~100 questions. ¨  Broker prepares prospectus. ¨  Broker locates, vets buyer. LOI signed. ¨  Due diligence to verify all material facts. Answer ~10 questions. ¨  Contract signed. Buyer escrows. ¨  Transfer domain names & accounts. ¨  Escrow released after inspection period ends. ¨  Aftercare for negotiated period.

Making Your Buyer Happy ¨  Spend extra time improving backend. ¨  Find ongoing technical help for them (huuuuuge). ¤  Retainer agreement a good option. ¨  Process documents for day-to-day and next ~6 months. In particular, marketing plan of attack. ¨  Go overboard on training.

How (Not) To Time A Sale $0.00 $1,000.00 $2,000.00 $3,000.00 $4,000.00 $5,000.00 $6,000.00 $7,000.00 $8,000.00 $9,000.00 7/2006 9/2006 11/2006 1/2007 3/2007 5/2007 7/2007 9/2007 11/2007 1/2008 3/2008 5/2008 7/2008 9/2008 11/2008 1/2009 3/2009 5/2009 7/2009 9/2009 11/2009 1/2010 3/2010 5/2010 7/2010 9/2010 11/2010 1/2011 3/2011 5/2011 7/2011 9/2011 11/2011 1/2012 3/2012 5/2012 7/2012 9/2012 11/2012 1/2013 3/2013 5/2013 7/2013 9/2013 11/2013 1/2014 3/2014 5/2014 7/2014 9/2014 11/2014 1/2015 3/2015 BCC Monthly Revenue