What does it take to build a business with $10s of millions in revenue?
In just a few years, Jason has built WP Engine into company of 125 people and 10s of thousands of customers.
His took his previous company, Smart Bear, from start to multiple millions in profit, without debt or VC, then sold it for cash.
Jason is also a mentor at Capital Factory (like TechStars or Y-Combinator in Austin) and investor in a few companies.
Say hi to Jason at blog.asmartbear.com.
Read Raw Transcript Now:
Success Harbor: Hi everyone. This is George Meszaros with Success Harbor and I have Jason Cohen with me. Jason is a serial entrepreneur. He built and sold Smartbear software. He’s now behind WPEngine. Welcome.
Jason Cohen: Thanks, thanks for having me.
Success Harbor: Thank you for being here Jason. Now WPEngine, those few people that may not know in the audiences is a managed Word Press hosting solutions. What were you doing before you started WPEngine?
Jason Cohen: Well WPEngine is my fourth startup so I was, I had sold Smartbear in 19, oh sorry, 2007 and left in 2009, had a baby, was a stay at home dad for a year and then at the time I had this, I still do have a blog about startups that was getting popular and the blog kept crashing every time I got good press like getting on Hacker News and so I had this kind of pain myself and of course I recognized that just because you have the pain doesn’t mean that’s a business. There’s a big business between the two things but it turned out in this particular case, the pain was very common. In fact it turns out that more than a fifth of the entire Internet is powered by Word Press right now so lots of people with lots of websites have the kind of problems that I had, wanting to make their sites faster, or scalable or protected from hackers and so on now we have lots of features and various things but it all stemmed out of a personal need and I didn’t have a solution that I could just use.
Success Harbor: So how did you test that to go beyond your personal need that there was actually a wider need? Was it just your own network or did you do some tests, advertising or what kind of research have you done?
Jason Cohen: Yes, so, I think, I mean, I know I’m fortunate in starting, you know the more reputation you have and so on you have a bigger network, the more people you can ask. That makes it easier but there’s a lot of things. So I was able to use my network and also just sort of reach out in general but there’s a lot of interesting techniques for finding people to talk to when you don’t have a network built in. So for example, something that I did at WPEngine later on that did not rely on my network, in fact it didn’t want to. I wanted something less biased and so I what I did is I’d go to Linked In and you could do this too, anyone can do this particular technique. Go to LinkedIn and you find people whose title of their company matches the thing that you’re interested in and if you say well I don’t know what the title would be that’s impossible to know, then I would argue that it’s going to be very hard to market to that person since you can’t describe who they are. So supposing you can and in this particular case, it was people who were independent word press consultants in my case, so that was pretty easy to find people who said they were freelancers or consultants specializing in Word Press so then I would reach out to these folks and say, ‘hey I know you’re a consultant about word press, we’re trying to build a product for you and I’d love to ask you about your daily life and the pain you have and describe some of the things we’re thinking about and see if that resonates with you. I also know you’re’, this is the key thing, ‘I also know you’re time is valuable and I don’t want to get your time for nothing so I’d be happy to pay you whatever hourly rate you think is fair even if that’s bigger than your normal hourly rate because this is a special one off thing but I really do want to know what you think and I’m happy to pay to hear what it is.’ Now what’s interesting is I sent this message through LinkedIn to thirty people, or at least thirty people responded I think maybe it more like forty people. Thirty responded. One hundred percent of them took the call and said yeah I’d love to see what you’re up to and zero percent of them actually wanted money. They all said no, no, I’ll just take the call. I’m just interested. In other words, just because I respected their time, and came at it from that angle, that was sufficient to get a meeting and in fact I didn’t have to pay out even though of course I would have because it would’ve been worthwhile to do that so I think even if you don’t have the network you can do things like that to reach out and actually talk to the people you need to.
Success Harbor: So do you recommend that basically for anyone regardless of what product it is you know that they’re trying to build, is to talk to you know I’m not saying as many people as possible but at least some people? I don’t know what the number is. Do you have any idea of what the number would be?
Jason Cohen: Yeah.
Success Harbor: Is it per a gut feeling?
Jason Cohen: No. It’s not a gut feeling but it’s also like everything in life, of course you can’t use every technique in every circumstance. Of course not. Should you talk to people first before you build and should you try to talk to more than just a few and should you get out of your network? The answer has to be yes because you’re going to have to anyway. In other words if you’re going to build this business at all, you are going to have to find potential customers and talk to them somehow. Whether that’s getting them to a website or talking to them on the phone or chatting with them or chatting over a ticket or emailing or going to conferences or sending out post card mails. I don’t care how you’re going to reach them you’re going to have to do that, so why not start with that and see if you can reach them first and learn something since you’re going to have to do it anyway. So I think it’s very hard to argue against that particular concept. In fact that’s where you get into trouble of course, you go build something without knowing how to get to people and then it doesn’t matter if you built it or not. It doesn’t matter if it’s awesome or not if you can’t reach out to people. Now so, yes I think you always have to do that. Now, the question is how many people? The answer is definitely not like three because then you don’t have enough data points to know anything. Well a lot of people do that. They’ll say, well I [00:05:48.23] Inaudible
Success Harbor: My neighbor and my cousin.
Jason Cohen: Well and maybe if.
Success Harbor: [00:05:51.22] Inaudible
Jason Cohen: It’s a consumer product but maybe more like, I got this idea from my dentist so I talked to him for a while and then and I talked to another dentist and he agreed so I’m going to do it kind of thing right. That’s not really validation but how many? You know I’ve seen people talk to one hundred and fifty, two hundred customers before they felt comfortable or you know as few as twenty before it was really clear. What I’m going to say is I’ve seen a lot of people. Another thing that I’ve done is that I cofounded capital factory which is an incubator here in Austin and that was 5 years ago so I actually have quite a bit of experience with new startups, trying to help them through and help them grow and help them exactly because this part this hardest part of the phase where you’re trying to figure out what do I even have, how do I communicate that, is there someone who even wants it, is that the right price and all that sort of stuff so how many people, so here’s what I think about that. First of all, you, the likely outcome is that you’re wrong and there isn’t a business. It doesn’t mean you’re wrong, there’s no pain or you’re wrong but you’re product is not interesting or that your features aren’t interesting. Of course they probably are or you wouldn’t be so excited about them. So that’s not really a question. The question is, is there a business meaning there are people in and you can find them cheaply enough and you can communicate what it is you do and they agree to and they want it and they want to give you money for it and they want to give you enough money for it and so on. That’s a business. Unfortunately a lot of ideas are not businesses, in that sense. And a lot of, pretty great products are not business’ in that sense. And a lot of pain that you see in the world is true and yet you can’t formulate a way to make money off of that pain so first of all the likely outcome is failure that you can’t really formulate how to make this work and therefore you should be seeking that failure. In other words you should be almost trying to disprove that this idea is so good, because it probably isn’t and the faster you get that the faster you can move on to something else or change what your idea is or change how you’re approaching it and so forth. So you should be going in to disprove, not to validate and as evidence of that WPEngine was not my first idea and I went out and validated it. It was just the last one that worked when I was validating. I had other ideas before that and when I went out and talked to people and I would still talk to 30 people, I would find that it wasn’t really converging on something you know. I would show the product or I would talk about the product and inevitably the person I’m speaking to says, that’s really interesting. You know what you should do with that? And then they’d run off on some rabbit trail. You should charge a whole lot of money and sell it through consultants and it should go to Fortune500 companies. The next person would say, that’s a brilliant idea but you really should do is add this completely different feature, make a premium, go after like really small business and see if you can upsell this way. And then literally every person I talked to had like a different, said, ‘that’s great’ but then kind of veer off into a kind of different way and so I could not find a sort of consensus on what it is that I should build that seems like it matches the truth that many people see and I couldn’t find it and so even though the idea I had was quote on quote good, in fact everyone said it was good. That was the initial reaction, actually it wasn’t a business and with WPEngine, though it turned out was a business too but that’s just the point. So, also in that story is how you know how many people to reach. So I mean it’s got to be in the double digits or you just don’t, you just haven’t talked to enough folks but what happens is, either it’s not feeling right, you’re getting different mixed messages. Some people just say no that’s okay. If some people aren’t interested, that’s fine. That’s why you got to talk to more people. It’s okay if three in a row say no if the next five say yes right? So you know discarding the no’s and how many yesses do I have and then are they, is the story kind of converging on something that everyone’s pretty much nodding on what price you’re charging, how you’re charging and what features would be necessary for it to get going and the state of their life and what pain they have and how they articulate it. Either that sort of converges on some kind of shared truth. I mean it’s fuzzy. It’s not precise right. It sort of feels like you’re having the same conversation over and over again. In fact it gets boring because the conversations are so similar, you kind of know what’s coming. At that moment you’ve talked to enough people and you’ve validated it and the way you know is you stop learning. If you’re bored because you’ve stopped learning then this particular activity is not useful. That doesn’t mean you know everything but it does mean that this activity is not helping you learn more so stop it and maybe it is time to build and get going so you can have different conversations and move it along. On the other hand if it sort of gets disparate and it’s not converging on a truth and a lot of people are saying no and it’s always a struggle and you’re kind of afraid almost of what people are going to say next because it’s going to be another god-awful thing. That’s a sign it’s not working and you know just talking to more people is not likely to solve that. What could solve it is maybe you seeing that maybe a different pitch or a different thing and you go down a different path and keep talking to people. That could work but again the usual outcome is, it’s not going to work so rather than beating your head against developing a product that people will eventually not buy anyway and waste all that time, it’s a good signal to stop early and say okay, this was too hard. This is too hard to make work. I got to find something easier. Another way I put it early on with WPEngine was, it was just super easy to get people to say yes to $50 a month hosting. We made Word Press fast, scalable, secure and if we answered the phone we could answer Word Press questions and not just say, is my server up or down. It was so easy to do that and so I used to say, startups are so hard. There are so many things that are going to go wrong and that you don’t know yet and this is going to be so much struggle. Why in the world would you also set up other barriers, like the stuff when you talk to someone needs to be really easy because plenty of other hard stuff that’s going to stop you.
Success Harbor: So should that process earlier on involve taking people’s money just to know that you have traction or people are actually serious when they’re talking to you?
Jason Cohen: Oh I’m a big fan of that and I almost always advise that people do try to get a check, even if it’s a small one like $9 because as you say it’s a signal. You’re not really doing sales though so you don’t want to fall into this trap where you’re trying to convince the person that you’re right because you probably can’t. You’re probably persuasive; you’re probably passionate about it. You’re probably knowledgeable about the subject so if you sit down with someone who is in fact a potential customer and you beat them over the head for 45 minutes they’ll probably give you $9 just because of that and so that isn’t validating anything so although yes I think in the end it’s really interesting to ask for a check because that is the best validation, I don’t think you should go in thinking about that goal and driving toward that goal because I think you’ll actually miss the point of talking to customers early which is to learn from them, learn how, what their life is like, not to sell.
Success Harbor: So even if you would go in and say, you know what, pay me fifty percent and I give you a year’s worth of service, at the end of the meeting, before you actually decide that this is a good idea to build, you don’t think that’s something that we should strive for as a business?
Jason Cohen: Well as I said you should. I think that it is wise to ask for that at the end. That’s the ultimate validation but what you should not do is think that that is the goal of the meeting.
Success Harbor: Okay.
Jason Cohen: Because then you get into a salesman mindset and that’s wrong because you’re not going to be able to sit down with every client for over an hour and beat them over the head in future. Now I guess if your business is that way where you are going to have that kind of sales then maybe that’s okay but if you to expect sell things over the internet and not have those kind of protracted sales things, if it’s possible that you won’t always be the person doing sales, then that’s not validation. That’s you, that’s coercion and you’re missing the whole point which is to find out what you should build, what their life is like. So for example, one of the great things you learn from these conversations is you learn the language that your customers use to describe these things which is almost never the language you use. Their language will be less precise, less accurate. They won’t use technical terms. They won’t use the right words. They’ll sort of be trying to say something but they won’t say it the sort of the way that is accurate but those are the words you need on your home page because those are the words in your own heads, those are the words you’re going to need in ad-words because those are the things they’re going to be keying off of. Precision might be wrong and so this is one of the things you get to learn is, of the way they don’t think of this as, like when I say scalable site I mean you get a lot of traffic. Almost none of our customers would ever choose that word even though it’s the correct word so I shouldn’t say scalable websites here in my adwords. I should say something like you know, you get a load of traffic, we’ll stay up or if a thousand people hit your website at once, we stay up or whatever the customer would say when the customer is thinking about it. So again if you’re in sales mode you’re just plowing through this. You’re not listening to their words. You’re not learning how they think about the world and how they think about stuff so that you can form your home page. You’re just, ‘let me show you this feature. Let me show you how great it is. Let me tell you the benefits you’ll have. Think about how your life will be like afterwards. Isn’t that terriffic? Won’t that save you a lot of money? So isn’t that at least worth the $100 a month. Tell you what I’ll write.’ That salesmanship, you’re convincing and cajoling and explaining to them instead of listening to them and having them guide you into how you should then be selling the next thousand customers. You’ll be selling the whole rest of your life. This is your chance. This is not your only chance but this is your main chance to get out of the gate with something that’s kind of in the right ball park.
Success Harbor: So you don’t want to sell during the meeting but in the end before you leave it’s okay to say, would you pay fifty bucks for this a month or would you pay 100 dollars?
Jason Cohen: No wait a minute. There’s two things. If you talk price which is what you just said, ‘ould you pay 50 bucks a month?’ You must talk price. This is controversial. There are a lot of folks who say you must not talk about price. Their argument is that it will taint the argument, taint the conversation that is, because the conversation and discussion should be around their life and their perception of things. The last thing you want to do is name a price and start talking about that and the value and the dollars and the budgets because you’re still trying to find out what would they would even find valuable in the first place for any price, for a dollar. What would they find valuable so let’s not taint the conversation; that’s’ the counter argument. I actually don’t believe in that argument at all and the reason is that I think your price determines many things about your business, really the whole business. If I tell you the product is a dollar a month, you’re like, ‘oh god a dollar a month, jeeze it must not do a lot, a phone number.’ Certainly when you can’t sell it with sales calls you’re going to have to do it super cheap, maybe even word of mouth. You probably can’t even pay to acquire customers at that rate. Like just all this stuff that appears when you say a dollar a month. If I told you a thousand dollars a month. Oh I can’t even afford it. Oh well it does it do X because do I need to get approval or will I tell this other person? I didn’t think I was would have to talk to them. Do I have to? Now I do. It’s a, in other words if the price changes, everything about how you get to market, who has that kind of budget, why they make choices in buying, and what their product might need to do and what might be okay for it not to do. The price determines a lot of that so to me if you leave that out of the initial discussion, you’ve actually left out tons of important pieces of information of your business that you’re going to need to understand so you have to talk about price for sure. I definitely did and I said, would you pay me fifty bucks a month and I tried different prices of course as I was talking to people but fifty was what we converged on.
Success Harbor: So let’s talk about pricing. What do you think is the best way when you price a product? Should we start high and then work our way to low or start low and then keep bumping the price up? See what resistance we’re finding?
Jason Cohen: Well pricing again is like these questions like hey how do I get my first one hundred customers? There’s no clean answer. It’s going to depend on lots of things. I mean are you trying to boot strap a business that only has one person ever? Are you trying to do a small boot strap business? Are you raising money to build a huge business? Are you selling to consumers or bid or businesses? Is this something that, what kind of businesses, how much value are you delivering? I mean in a case of
Success Harbor: So in the case of WPEngine.
Jason Cohen: Yeah.
Success Harbor: How were you think about pricing? Were you thinking well you know I’m going to try $300 a month? See where it goes and then lower it or increase or decrease. What were your, what was your thought process?
Jason Cohen: No I talked to customers and asked them, what would you pay for this? That’s why you got to do that because you can’t just draw numbers out of a hat and hope that works. So look, I mean that the rule of thumb of course is charge the most you can and not just because that’s not leaving money on the table or whatever cliché you like, but also, for any business but especially a bootstrap business, the price you charge also determines the number of customers you need before your business is really a growing concern or before you get to a million dollars in revenue or whatever kind of milestones you might want. How profitable you are. The price determines that so higher is better. I mean you much rather as a small business, much, much rather you charging in like the fifty to $150 range per month say and then you only need about one hundred and fifty or two hundred customers before you’re making ten to 15k a month in revenue and you can quit your day job and this is really a real business and getting a hundred and fifty to two hundred customers is doable. I mean you can scratch and claw your way there. You can have phone conversations if you have to get to that point. In other words, you can sort of brute force your way there. You can brute force your way into a thousand customers. Certainly not to ten thousand but you can definitely do a hundred to two hundred customers so if the price is high enough, you really have a better shot of success. Most businesses period and full stop never get a thousand customers, never get as many as a thousand paying customers ever so if you charge enough, you have no choice but to get a thousand customers. So for example, if you’re charging $10 a month you have to get a thousand customers even just to make ten grand a month in revenue which depended on your job cost may not be enough to quit your day job just depending. Maybe it is. The point is you need a ridiculous number of customers that’s going to be hard to get to. Most companies don’t so again why are you choosing that path that’s so much harder? So in general you know more is better but again like every order of magnitude you go in price, everything changes so you could take that to its logical extreme and say I want to, it should be $1000 dollars a month or it should be $10,000 a month or $100,000 a month and indeed it can but then the business needs to be different things you’re selling to different people who require different things that you probably can’t deliver on right now anyways so that may not be an option. So again you know for better or worse, this is, there’s a lot of things tied up in that so it’s hard to give one answer so.
Success Harbor: It’s like how long is a piece of string right? It’s hard to answer it like that.
Jason Cohen: Well what it is, it actually, it’s a very good discussion if you have a very particular example of either this business which has this goal with this model we’d like to use. Then what should I do, what kind of tricks should I use? What should I do now or later? Of course you have to start lower now, because the product sucks now. It’s the first product. It always sucks and then it gets better later, you can charge more so that’s clear. At the same time again if you charge too low you’ve set wrong expectations. You’re getting customers who by definition don’t spend a lot of money on software. That’s a bad place to start and again you may need too many customers. A final thing on price though by the way is with a higher price you can afford to pay more to get the customer. That can come in the form of time, like actually getting on the phone and doing a sales call. You can do that for $100 a month customer but you can’t do that for a $1 a month customer. There’s not enough time to do it but it’s also true of whether it’s ad-words or Twitter or doing guest blogs or anything, anything where you’re spending money in order to get attention and get sign ups. The higher the price the more you can afford in those arenas and that means the more channels are available to you and more of the channel you can go bid against and so again a low price, very few marketing channels will be cost effective and so you’ve closed those doors and again that’s hard for a business to close those doors. You need lots of options because who knows which of these marketing channels will work for you. Who knows which ones you’ll figure out so more options, that’s the de-risking, that’s the power. It’s having more options and the higher price allows you to have more options and that’s why that’s such a de-risker for a small business.
Success Harbor: So companies that want to be cheap because maybe they’re afraid when they start out that it’s going to be expensive, it’s going to be hard, they’re actually increasing their chances of failure right, in essence because they just limit their own options?
Jason Cohen: Yeah you got to get a ton of customers and you can’t pay enough to get them so.
Success Harbor: Sounds like you need magic. You need something viral which almost never exists right?
Jason Cohen: Yeah, viral doesn’t, almost never exists, that’s right. Some, now, there’s a difference between word of mouth and viral. Word of mouth can exist but the problem with both true viral, meaning the product itself truly does pull in additional users, that’s what viral really means, the product does it or word of mouth. The problem with those things is, before you have a critical mass of customers those effects are nil. In other words if I have ten customers, doesn’t matter how much word of mouth they do. One way to get one more customer. Like, I can’t grow that way. Now once you have you see some of these consumer businesses, once you get ten thousand customers or even one thousand customers, certainly a million customers, then word of mouth has a real effect or viralness can really be powerful but you’re still going to have to in a car analogy you’re still going to have to have a starter motor to get the engine turning over before that effect matters. Therefore to get going, word of mouth and viralness even if you have it, is actually not a growth driver, not for a while so you’re still going to need an answer. Now for some companies the answer is raising money so that we don’t have to. That doesn’t mean you don’t have to charge although that’s also a route some people take, but raising money means well I realize that I mean, going to charge, I realize I’m going to need tons of customers for this to work but by raising money I can spend it anyway to get that engine turned over, to get some of these effect happening and so on and that again of course is a perfectly rational answer so again this is part of the problem with the generic answer of raising money, the answer is very different because your constraints and your goals are very different so your actions need to be very different than if you’re bootstrapping so it’s not a right or wrong of course. It’s a matter of aligning your goals with the business and the market you’re going after and so on. Aligning things so that it’s consistent.
Success Harbor: So how did you or I don’t know, how this applies to WPEngine but going from monthly to yearly or one versus the other, what was your thought process in that and do you think you can go, I mean, what, how do you determine which one is a better model for your business?
Jason Cohen: Well you don’t have to pick. We don’t. In fact most companies don’t have a monthly rate. Well that is, most companies which have a monthly recurring revenue model in the first place of course have a monthly rate and then they have an annual rate in which you have some discount right. So if you’re on an annual plan, it’s cheaper than a month times twelve and so by you’re essentially paying the customer for the privilege of getting a year of money up front and that is always a good idea and we can get into why but you know, maybe it’s better to cover more topics but the basic and obvious reason is you get the cash today. You get the cash today you could spend it today. You can spend it on that next set of marketing or that next feature you need to make or that conference that you finally can go to or you name it right. You can go put that to work now instead of waiting and that’s huge. At WPEngine we have marketing campaigns which pay themselves back in negative one months. What I mean is, we get, because enough people pick annual and that of course gives us more cash up front, that cash more than covers the cost of the marketing campaign and so because the cash we get immediately but the marketing campaign is paid on credit card which we pay the following month, we actually get more money than it costs and we don’t have to pay that cost until next month so that’s why it’s negative one month to get the money back. When you have marketing campaigns like that which an annual plan affords you if course if people pick it, when that’s possible like that’s the kind of cash flow you can suddenly have and that’s transformative to what a business can do especially of course if you’re bootstrapped and therefore you’re absolutely aligned to cash only. But even if you raise money as we eventually did at WPEngine, still cash is king no matter who you are and it’s phenomenal. So it’s absolutely transformative to offer the annual plan. One little note on that. In our case we’re fortunate that a lot of people pick the annual plan up front and that’s great. Most products that’s not true or even in our case, most people don’t right, but a pretty high percentage do more than you think. Most companies, it’s not true because you haven’t developed a relationship yet. You haven’t developed trust yet. Customer doesn’t necessarily know if they want this product for a year yet. And trust in a relationship is something that builds over time. You don’t get that immediately. You get benefit of doubt immediately but you don’t get trust immediately and so a lot of people are just not prepared to do an annual plan but if you then message people six months after they sign up and say, ‘Hey, so glad you’re getting all this use out of the product. So glad you’re happy. By the way did you know we have annual plans. If you wanted to now switch to that you know you get two months free’ or whatever your deal is there. At that point, since they do like the product, they do trust you, they can see themselves using this, well this is just a good deal for them. So just a reminder that coming back behind later, after you’ve built that relationship is a great way to get the annual plans going, even if it doesn’t work out in the initial sale.
Success Harbor: So let’s talk about what works for WPEngine in terms of signing on new customers especially the first year or so in business?
Jason Cohen: So in our market, Word Press there’s a large community of people who already are active and talk to each other online and also at conferences. That’s actually pretty rare for most markets that that would be true but if you think about it these are people who are freelancers therefore they’re online to get business and to talk to each other about what’s going on and also there are people who are bloggers which means they write and they’re active on social media and so on and so they’re particularly adept at that and therefore using social media channels and so on was actually a really good way for us though obviously that wouldn’t necessarily automatically apply in other markets. Again also there are these conferences. Now, you know, every reasonable sized market has a couple of conferences of course, but Word Press has over three hundred conferences a year around the world. They’re called Word Camps and they’re in different cities and so with you know with literally dozens of conferences per weekend that you could go fly out and attend it was really possible to get face to face with people, potential customers number one but number two, these people in the community and those people are very influential. You know a lot of people look to them for advice on things like you know, hosting so we’re fortunate and that there were these dynamics in the Word Press ecosystem that we could, we could tap into. Of course today, we have lots and lots of channels in which we acquire customers. We try new ones all the time but just to calibrate the discussion we have about one hundred and seventy employees now and we’re still growing really fast in revenue and in employees and of course customers. And so of course now it’s very different. There’s tons of stories there. You know it’s a whole team of people doing different things and so on. There’s specialization, lots of different channels but you know we had some, things that were particular to the market and I think when you look at lots of companies who are successful, you find that similar story. In other words it’s very, when you see a successful company, it’s very rare they said, I just took out some ad-words and it just worked. That’s actually not usually the story. Usually there’s something about the audience, the market that they’re selling into where they had something unique. Either they had something unique to say and that people wanted to hear because they had an interesting story or they had some kind of creative marketing and that doesn’t mean it has to be super creative and no one’s ever done it before. Not that kind of stuff. Maybe another company did something sort of creative in another market and you just copied it in your market because in your market, no one did that creative thing. That’s good enough right? It doesn’t have to be unique in the world. It just has to stand out a little bit and so turning perfectly fine copies of other people’s creative ideas for other markets to do that so I don’t mean to sound like it’s impossible or you have to be a genius. We certainly weren’t super geniuses when it came to how we approach that. It’s just that we said what’s available to us in the market? Where did the influencers go? Can we go there too and again we’re fortunate this market is very a well-versed in social media and therefore that was a good outlet for us. Again though like you can look at it in either end of the telescope. You can either say okay so I have to find the interesting or easy or unique parts of this market or messages in this market I can use or you can use this as a constraint in deciding whether the business is a good idea at all. Again going back to the idea that, the idea is fine but is it a business? So whether you can get two people easily especially those first two hundred people, real customers, that is a big factor in whether the business will be successful so if you have no ideas, there is no particular way the market’s noisy and too hard to break into. Well that might mean it isn’t a good business idea or that is the idea, that’s not an easy business to follow unto it. That might be one of the main
Success Harbor: Yeah.
Jason Cohen: Of the main things that kill a business.
Success Harbor: So when you start out how many channels should you test simultaneously. Is it, let’s say you just have maybe like 10, 20 customers starting out, should you try just a little bit, maybe multiple channels and the one that hits, the one that works, drop the others and just focus on that one or?
Jason Cohen: Well here’s how you know that’s not a good strategy. That is what everybody says, and most businesses don’t hit on. It doesn’t work that way. They don’t find that one channel that works. Most businesses never find a channel that really works, so I think the spray and pray thing is not particularly useful. So rather let’s not assume we know nothing at all about any of the channels and spray. By the way, of course as a person or as a small team, of course you don’t have expertise in all these channels so we start with, I don’t have expertise in this channel, then you layer on, also since we’re spraying to 10 channels or even 4, I don’t have expertise and I don’t have time to really try to do a really good job. I’m really trying to learn how to use that channel so I won’t do a very good job and so of course, why would that work? Like there is no particular reason why that sounds like a good plan right? So instead I would say, look, as the founder or as a small team, some of these channels are just naturally something you understand better. Like you might say, I’m a big Twitter user but Facebook is just weird. Great then work on Twitter ads, work on Twitter social media and don’t do Facebook ads because you don’t understand that. You don’t understand that environment. You don’t understand that tool. You, the kinds of people who are there and love it aren’t you so you’re guts not even going to be right. So the last thing you want to do is go there knowing this is you’re set up for failure right. Instead you know, of all the social media things out there, maybe there’s one that’s the one that you understand the best already. Focus that one, or say, look we’re going to hit in person. We’re just going to do this in person or we’re going to cold call. I’m good on the phone. I’m good at closing stuff on the phone. Now will cold calling be the best strategy for ever and ever. Maybe. Probably not. So what. The goal isn’t to do this forever and ever. The goal is to get to a critical mass of customers so that this is a real growing concern and you’re really reinvesting in the business and it’s a real, going business. That’s the initial goal and getting to that by any means necessary is perfectly fine. I think calling people on LinkedIn all day or other lists that you bought or whatever, if, if you love the phone, you love calling, is a great strategy and I’ve seen tech companies and actually other non-tech companies be really successful at that but only because the founder already felt comfortable in that medium. That’s why. I wouldn’t feel comfortable in that medium. I hate the phone. I have to force myself to do these customer interviews because I hate getting on the phone. I don’t know why. I have like a phobia of the phone. I’d rather do anything than to answer a phone call. But so, I shouldn’t start my business with cold calls. Those other folks, if you send them an email are like ‘ehh, I don’t want to talk by email, let’s get on the phone.’ Well that person maybe you should start with cold calls. So what is it that you are sort of naturally adept at or comfortable with and then just lean the hell into that. That is your best chance of success. No it doesn’t mean it’ll work and maybe you will have to try another channel but get focused unto something that’s your best chance of success before giving up and trying a channel that’s actually less, even less chance of being successful and certainly don’t dilute over a bunch of channels. That’s, to me that’s the worst use of your energy.
Success Harbor: So, WPEngine has, I don’t know how many customers you have but its tens of thousands right.
Jason Cohen: Right.
Success Harbor: Customers at this point approximately. So at this point, what is better, how do you grow? Do you grow by adding more services or do you grow by adding more customers? Which is a better way to grow for you?
Jason Cohen: At this point?
Success Harbor: Yes right now.
Jason Cohen: Based on current day? Okay. Alright so now you have to make a mindset shift because I’ve been speaking all about getting your first, you know, fifty customers, a hundred customers, two hundred customers. At our current stage, totally different mindset, totally different goals, different constraints and so on. So, there is quite a few answers to that question. There’s not, at scale there is never one answer to things. It’s just more complicated than that. There’s more moving parts, more things to do. So for example, any business that, that’s a recurring revenue business has cancellations. Let’s suppose that is three percent a month, three percent of your customers cancel every month. So let’s suppose also that your company at scale, is growing at three percent a month. That’s actually pretty fast for a company that’s making say fifty to one hundred million dollars a year. Growing three percent a month is actually pretty impressive at that size. Like that’s about fifty percent a year over year and once you’re say over fifty mil’ in revenue, that’s pretty damn good growth rate. Even in tech, that’s a good growth rate, certainly everywhere else. But wait a minute, so I add three percent but then three percent cancelled so actually that three percent which I added which is super-duper hard gets literally removed by the cancellations. I can’t grow. At all. In that scenario. Now early on none of this matters, you’re not focused on that at all. In fact these factors are not there. But at scale, these statistical factors are a law of nature. So for example, lowering your cancellation rate is one of the most important things you can do at scale, which isn’t one of the things you mentioned for growth. But lowering the cancellation rate is actually an incredibly powerful leverage against growth. The second thing that’s related to that you’ll see why in a second is, do the existing customers upgrade? Do they upgrade automatically because it’s like a you know pay by use and so if they use it more they already pay more money or maybe it’s tiers, like hey, you’re on the middle tier, you should be on the higher tier. You should get these features and do you try to upsell them on that or as you say, are there additional services they could purchase? That’s yet another way right. There’s different ways in which a customer could grow their business with you or for an enterprise customer. We have both small business and enterprise customers. We have both small business and enterprise customers. On the enterprise side we have conversations around, hey this whole campaign went really well but there must be other campaigns there. Maybe we should be talking to them, and that’s another way to grow on the enterprise side. There’s many ways to grow an account that you already have. Growth of accounts you already have in a way if you think about it, mathematically, counter balance the cancellations because if two percent of people literally leave but of the ones who remain, you get two percent more revenue from them due to all the factors I just mentioned. That, literally cancels out the cancellations even before we get to the growth side, just focusing on the customers you have. Some leave but some grow but within you when you can get that to counter balance, that is people are growing within you, as much as their cancelling, that’s a magical point mathematically because instead of having this cancellation rate which is an exponential decay that’s very hard to get in front of you’ve now eliminated that. In fact the best companies have a negative net churn as that mathematics is called. In other words they grow even despite cancellations with just a customer base. RexSpace, a public hosting company which has that characteristic so though. SalesForce has that characteristic. Zendesk has that characteristic. So that’s part of why those companies are so highly valued and why they can grow so fast even though they’re big at scale it’s because they actually have negative net churn and their customer base itself actually grows even despite cancellations. Then on top of that you have growth so the reason I’m like dwelling on this is these are the interesting factors which appear as you grow and they suddenly become mathematically important. In fact, not just somewhat important but literally, prevent you from growing any further unless you’ve addressed them and of course you need to address them early and not wait until there’s a problem right. So when you think about growth in all these dimensions, retentions, cancellations, these upsells of say new products, is growing within us, enterprise is different than small business, and so on and so on. And then also there’s new customer growth and so there there’s a whole bunch of channels you know. Some of it is sales assistant, some isn’t. There’s all kinds of different channels and then different advertising channels which have different strategies depending on what’s going on there. I’ll give you an example because this is applicable to literally all businesses so hopefully this is useful information. So you think of these marketing channels all like ad-words, Facebook ads, Twitter ads, going to conferences, sending out mailers, doing magazine ads, billboards. I mean you name it, like these are all ways to reach people through channels right. So each of these channels has some kind of limit or inventory limit where there’s nothing more to buy. So like with Adwords, you can bid the highest possible on whatever keywords are relevant to you and however many clicks you get, you can try to optimize that a little more of course, try to get more clicks, but ultimately there’s only so many people searching for those keywords and who will see you and click you. There’s only so many, so much and Google click traffic is actually going up very slowly now. Last decade it was going up fast so people think of it as going up fast. That’s no longer the case. In fact, it’s one of these questions that Wall Street now has on Google is how they will grow, continue their overall company growth and an interesting clip when search traffic is not growing in an interesting clip. So anyways, the point being whatever ad-words can deliver, that’s pretty much all it can deliver. It will maybe grow kind of slowly but there’s just not that much left. You tap out the channel. So when you’re thinking about growing a company at scale, you tap out these channels, there’s nothing left to provide so you have to go get additional channels to continue growing and so at scale yes you are testing multiple channels and doing that but that’s because you’re attention isn’t divided. You in fact have a whole team, to go after that so you have the time and money to in fact go after that in an intelligent way unlike when you’re first starting out and that dilution of your time is deadly. Here you can simply plan for it, hire for it, budget for it, you can get consultants in certain areas and so in fact you can and must attack that but only because you have the time and resources where that is rationale. So we have lots of channels. Some of them are saturated and so our efforts there are around optimization and then others are not saturated so our efforts there are how we can take the most inventory there. Another interesting point, I know maybe I’m rambling but hopefully.
Success Harbor: It’s okay.
Jason Cohen: It’s interesting.
Success Harbor: It’s good information.
Jason Cohen: Okay even when you’re starting out this is useful. There are marketing channels which are zero sum games and there are marketing channels that are not. So what I mean is, there are channels where if you get a click or a customer or a lead then someone else doesn’t and there’s other market channels where that’s not true so. Like in social media that’s an important channel but it’s not true that like if you talk to someone, no one else can right. It’s not like that. It’s simply that you’re present and you’re part of it. Adwords is also not zero sum. You have an ad but so do other people and yes maybe you can get a better ad position but still other people get clicks. So it’s not zero sum either but other things are. So an example would be an affiliate program so these are people that when they give you a lead or when they give you someone who closes, then you pay them you know like a kick back for having done that. And some affiliates use email lists to drive that. Some people are good at SCO’s so they’ll write articles that get ranked highly, that drives traffic to the article and through the article it clicks over to you and they get credit. There’s different ways affiliate works but you can, there’s a fundamental way. Affiliates are a zero sum game because an affiliate who has an email list of say a hundred thousand emails he’s not going to show up through a whole lot of companies in the same space. Like he’s not going to show up for ten different hosting companies because he doesn’t have a good story for why he’s recommending so many different ones. Like he wants to say look these guys are the best. Let me tell you why. It’s a service to you that I’m even telling you this. So you can’t tell that message ten different ways in a year right. Like that’s just disingenuous. So that guy is going to promote somebody. He is going to promote some hosting company because he can make money at that and wherever he promotes, he’s promoting them and not anyone else. Whatever leads he sends, he’s sending to them, not anyone else. That’s a zero sum game. So one thing I want to point out is that zero sum games, again when you’re first starting out, this distinction is not as important because you’re just trying to get customers. You’re just trying to crawl your way into this thing. Once you get to scales, since that’s what we’re now talking about, zero sum games are interesting because it’s more valuable to get a customer in a zero sum game because it’s someone you got and the competitor didn’t. And so that’s an interesting, different dynamic along those channels and so your strategies there might be different than you would in other channels where that’s not true. So, and of course, word of mouth kind of stuff is still kind of super important. I think we still get sign ups through word of mouth even today so word of mouth is definitely important. How can you? So early on as we said earlier, if you only have fifty customers, there’s not much they can do to help you in any way. There’s not enough people but now as you say we have tens of thousands of customers, and so yeah if one percent of them a month help us find a new person to sign up, that’s a hundred or one or two, actually hundreds of new customers in a month, that’s a lot. That’s material to a company of any size to get at one percent a month by word of mouth. So that.
Success Harbor: Yeah.
Jason Cohen: Becomes really important at skill so that becomes a really good campaign so lots of different things all going at the same time. Those are of course not even all of the things that we think about, when it comes to growth at skill but as you can see there’s actually a lot of components that go into driving real growth because skill brings complexity.
Success Harbor: Yeah you know earlier you mentioned that most businesses never get a thousand customers.
Jason Cohen: Yeah.
Success Harbor: And that’s so, you know, I believe you and I, you know, and all of that but why do you think that is? Why do you think, it doesn’t sound like a huge number.
Jason Cohen: It does to me.
Success Harbor: But why do you think they never get to a thousand? I mean, you know, okay your business is tens of thousands of customers, okay, and there are of course businesses with millions of customers, you know, but a thousand sellers is doable.
Jason Cohen: Not really. No I disagree. Name three companies with millions of customers, and I mean paying customers, not people who downloaded an app. That’s not a customer.
Success Harbor: Well Dropbox is one but I don’t think that they have, most of those are free accounts right?
Jason Cohen: Right, paying customers.
Success Harbor: So I, Google drive, I don’t think most people are paying so.
Jason Cohen: Right.
Success Harbor: Yeah. It’s tough.
Jason Cohen: Amazon does.
Success Harbor: Yeah.
Jason Cohen: Apple does.
Success Harbor: Yeah.
Jason Cohen: Ebay you could argue. They’re not recurring customers but they’re customers. You can count.
Success Harbor: Well what do you need to do to have a thousand customers? Why, what’s missing from those businesses that just can’t get a thousand customers? Is it systems or is it just the market they’re in?
Jason Cohen: No it’s just super hard to get that many people to agree to pay for something, like to get enough attention from enough people. I mean you think about the chain of events that has to happen. For a small company, for person to buy from them and it’s like, it’s basically impossible. Like if you were to describe it, it’s like, that’s never going to happen. Like first you have a company with no brand and no money trying to get attention on the fricking Internet which is where all the money and all the brands and all the other little companies are yelling. It’s like basically impossible to get any attention ever on the Internet number one so then somehow or another, you, you know , you don’t have an SCO, you don’t have a brand, you don’t have anything to go, you don’t have a budget, you have nothing to go on. Somehow or another you find someone on the Internet. Who knows how you did that and they lean on the home page and you and I know that most of the time people bounce off the home page in four seconds right? Like literally most of the times, you get four seconds and they’re gone. That’s the usual case after that rare event that you even found somebody. Okay, great. They’re gone. Alright somebody stayed. Who knows why. Who knows what caught their attention on the home page. Who knows but I hope you can find it and I hope you find some of those hooks when you’re talking to some of those customers by the way because it is hard to hook them in four seconds isn’t it. You better have the right words there. Anyway so they stay. Then they read through your tripe. You know this weird marketing copy. It’s not very good. You have [00:50:38.10] Inaudible you forgot to find. It’s not really speaking to them yet. They’re reading through screen shots. The design isn’t great because this is your first website. Somehow or another they’re not deterred by all this nonsense and they use the product. Now how do they use the product? Well they download something or they had to log into something or somehow or another they had to get through more barriers, more reasons to not do it before they used the product. Also they saw the pricing and they weren’t deterred. By the way, they could be deterred because it’s too low and they think, ‘Oh, this is just some crap, it’s too low. I need a serious company’, or vice versa. ‘This is too high. I don’t have the budget and they leave.’ All kinds of reasons why the pricing can deter someone right so okay, so they’re undeterred by the price, they’re undeterred by trying the product and then they try your product. You’re a new company so the product can’t be that good. It can’t have all the features they want. It can’t work the best. It can’t be the fastest. It can’t be anything that’s the best because it’s new. Of course it’s not. Somehow or another they decide nevertheless, they’re going to pay money for this pile of crap and eventually give money. Now the idea that that chain of events is going to happen with any frequency is almost ludicrous and so it doesn’t. So it doesn’t. Like why would it? It’s crazy. And even if you say things like I’ll find those people because I’ll use ad-words. Great. A click through rate that’s great on an ad-word is one percent. I mean that’s tops if you get one percent. Right. That means 99 out of 100 people who searched for the thing, you know, at best you get like one out of a hundred coming in so you start working the math backwards to a hundred, a thousand paying customers. A thousand paying customers. How many get that ridiculous funnel I just said, like one in a hundred? No. One in a hundred only just gets you the click on adwords. Right, and at best another one out of a hundred get through that damn web page a conversion rate for a home page, oh sorry, a whole website of one percent. Again pretty good. So that’s ten thousand to one right there so those thousand people, you’ve got ten thousand to one. Right off the bat like just conversion rate off the home page and off the adwords, even this, I’m ignoring the whole rest of the funnel, all these other reasons why they wouldn’t do it or they believe. Right away you’re at a ten thousand to one disadvantage. So it’s not, you have to get in front of ten million people to get to a thousand people and that’s being optimistic about your conversion rates. Ten million people to get to a thousand. How the hell are you going to get in front of that? And again with no brand, no SCO, no you know, no social media presence. No budget.
Success Harbor: Yeah.
Jason Cohen: Of course it’s impossible. Now I say impossible. Of course I don’t really mean that. I’m being superlative on purpose to make the point of why it’s so hard. It should be hard. Why in the world would we think that was easy. Course it’s not. Again, even if the product is good, and your idea is good, course it’s not easy and again that’s why I get back to you, well could I get twenty just by the hard way like calling people or going door to door physically or paying too much in ad-words or you know, again these other things which you might say are quote on quote not scalable, not cost effective. Okay but could I claw my way in anyway? Or PR like I get a guest post at a great blog and I get maybe a twenty people out of that right because I get a couple thousand hits to my page, maybe twenty of them sign up because they’re sort of predisposed to like me. Yeah that’s possible but if you claw, you can claw out ten or twenty people out of you know one or two good PR hit and you can claw some people out of like yeah you can definitely claw and scratch your way in there but to a thousand, maybe but man, maybe but why again you know going back to the top, like why set yourself up for that slog when it’s so hard. Let’s set it up so that one hundred customers actually gets you cracking and two hundred customers means it’s really, you’ve quit your job and you can plow one or two grand a month back into the business. If we can set up the business model like that, man at least then if you’re successful, in all these difficult things, you don’t have to get to a thousand first with that impossible thing. Let’s get to something else first.
Success Harbor: Okay, you know we’re like way over the thirty minutes so I’m just going, I just have like one more question and.
Jason Cohen: Sure.
Success Harbor: I appreciate you’re staying on. If you started a business today, a new business, what would it be and why? Where do you see the opportunities in business today, 2014?
Jason Cohen: Well I mean, again like that’s, there’s opportunities anywhere.
Success Harbor: Okay.
Jason Cohen: Anywhere. Like even the big huge successful businesses that sounded so stupid at first like when possible, really, people are going to rent out their sofa and they trust strangers and deal with money and damage and that’s impossible. And of course everyone at B and B is one of the big success stories out of Silicon Valley. So no idea is too weird, to potentially be successful. No market isn’t, is done and there’s no room for innovation at all. That doesn’t exist. So, it’s anywhere. It also depends on your goals like if you say look what I want is just to take control of my own life. It’s okay if I never make ten million dollars or something. What I want is to quit my day job, put 10K in the bank in profit every month after, I want to get to that point. It won’t happen immediately. I just want to get to the point where I’m putting 10, 20, 30k a month in profit in the bank. I’m in control of my own life. I own something. It’s an amazing journey. It’s an amazing challenge. Well then that’s incredibly great and its possible but of course the market’s you go after, the choices you make in product and the business model and the support model and what opportunities would make sense for that kind of business, it’s going to be totally different than if you say like, ‘hey I’m going to disrupt hotels and be worth ten billion dollars. Okay, well, great.’ Well you know the guy working by himself should not try to disrupt the hotel industry but someone else totally can so again you know what is it that you want out of the business and then how can we find opportunities where you’re the right person to attack that opportunity for some reason, you have some edge like you have an insight, or you have industry experience or you have some customers you know you can bring in and solve some of that problem or whatever your insight is into this particular problem that you’re bringing in and you know how can we get to a sustainable business at a reasonable number of customers and reasonable marketing channels and get a product that’s not too terribly hard to build, not too terribly risky so we can get it out there and you know all these, basically all you’re doing is de-risking different aspects of the business. How can we do that in a way that’s going to work with the goals and path that have in mind. That is the right question because there’s no area or industry or market or audience of anything that in which it’s not possible to innovate and do something valuable.
Success Harbor: On that note Jason, I really appreciate, there’s so much that such a great information from you and I really appreciate you coming on Success Harbor. How can people find out about WPEngine or connect with you?
Jason Cohen: Sure so for WPEngine, it’s wpengine.com and you can see what we’re doing there and if you ,look if you need a Word Press site then maybe you should be using us because we are, our success is ultimately earned by having a great product right so maybe it’s useful for you but, if you want to find all these kinds of thoughts. Part of the reason I have so much information to share is because I help other startups as an investor, as a mentor and I’ve been writing about it for I don’t know seven years or something. It’s just been a passion of mine to get better at writing, get better articulating and put that into words and so I blog at Blog.Asmartbear, the letter ‘A’ smart bear the animal dot com and so there’s hundreds of articles there. I don’t post often because I try to do higher quality, lower frequency especially recently because WPEngine is taking so much time. I really don’t have time to write a lot but there’s years of archives there too so that’s a good way to find a lot of advice.
Success Harbor: Sounds good. So everybody out there check out wpengine.com and say hi to Jason at blog.Asmartbear.com. Thank you very much Jason. I hope you’ll come on again sometime in the future. I wish you much luck with WPEngine. You guys are doing awesome.
Jason Cohen: Thanks. I appreciate it. Thanks for having me on.
Success Harbor: Thank you very much.
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