SmoothSpan Blog

I’m reading with interest some posts that are hot on Techmeme at the moment from Jared Sinclair and Marco Arment about succeeding with iOS apps and as a Solopreneur.  Jared’s blog post is a cautionary tale for those who would like to bootstrap a small venture well enough to quit their day jobs.

Many weigh in with various comments and based on his latest post, it looks like Jared was inundated with a bunch of notes from people who thought he just didn’t market the app enough.

I’ve been a solopreneur with some part-time helpers trying to make the gig into a multi-person bootstrap for some years now.  I’ve managed to create a business that now throws off more cash than I’ve gotten at any Day Job I ever had short of being an exec at a public company.  It’s been an extremely happy experience and I thank my lucky stars and my awesome customers every day for making it possible.  I want to talk through what Jared has bravely reported about his venture and compare it to what’s different about my own CNCCookbook and talk about how I think those differences matter to a successful solopreneur.

First the Results of Both Companies

Jared starts out presenting his financial results from his iOS app, Unread:

Unread Cumulative Sales in the First Year…

It’s pretty easy to see why Jared is unhappy–most of the action happens shortly after he shipped the initial application.  Yes, there’s steady growth afterward, but the actual sales per week or month (remember, the graph is cumulative) had to be pretty disappointing if you want to live off that income.  The app only costs $4.99, so Unread has actually been extremely successful in terms of the number of customers it has attracted–looks like somewhere between 6,000 and 7,000.

I wanted a way to provide some similar insight into CNCCookbook’s apps, but I’m not as interested in Jared in giving away my exact finances (sorry folks, you’ll just have to do some back of envelope calculating to figure it out).  Here is the cumulative graph of software license years sold for CNCCookbook’s software:

CNCCookbook Cumulative License Years Sold…

I’ve been at it for a few years now, and the growth has been steady, almost hockey-stick-like–this is a very happy business!  The big bump between 10/22/12 and 10/22/13 reflects the launch of our second product.  I’m hoping to get another bump like that in the next 6-12 months as I launch our 3rd product.

With all that said, I want to make some suggestions about what I think has made CNCCookbook successful.

Suggestion #1:  Lead With Subscription Pricing for Recurring Revenue

First, what is a “software license year sold?”  CNCCookbook sells both subscriptions and perpetual (you buy the software for life with one payment).  Recurring revenue is essential for Solopreneurs because it means they’re getting new revenue without much new work other than keeping the software vibrant and useful.  Getting new customers is hard work.  In a minute I’ll discuss how CNCCookbook goes about it, but suffice it to say I have created a business where my biggest problem is having enough software to sell my customers moreso than getting the new customers.  Part of that is due to the recurring revenue stream.  If you’re a fan of the SaaS/subscription model as I am, you’ll realize that once one of these revenue engines gets up sufficient momentum, they’re almost unstoppable.

So, my graph shows how many years of subscription were cumulatively sold for both products over time.  I plugged in a figure of “6” for any lifetime sale because that’s more or less how I think about my lifetime pricing.

Suggestion #2:  You’ll Want Perpetual Pricing Too, and the Subscription Helps Justify a High Price For It

 FWIW, I mostly wind up selling the lifetime version during sales, but that’s okay too because having a fairly expensive lifetime version does a couple of things.  One, it addresses the needs of customers who just don’t like getting tied to a stream of payments.  This is a very real audience, and if you don’t give them an out, you’re not going to reach them.  Why not choose a perpetual price where they’d have to keep resubscribing for so many years before you come out ahead that everyone can see it as a win-win situation?  Why leave the perpetual hole open for a competitor to come in and take over?  Once you have both pricing models, it gives your customers options.  Do they prefer to preserve cash flow?  My subscriptions do that, just like the lease vs buy decision on a car.

Suggestion #3:  Find the Sweet Spot on Price and Insist On It.  You Probably Want Fewer Customers Willing to Pay More.

My first product offering was $69 for one year.  It seemed like a lot to me at the time, but it wasn’t.  It was actually less than the product was worth–I raised that to $79 with no impact on the units whatsoever.  More importantly, it was and is too low for a business you want to have be your sole occupation.  This gets me to the point of my headline–figure out a business model that requires as few customers as you can easily sell to achieve your financial goals.  Jared’s Unread sells for $4.99–pretty typical for an iOS app.  But it took him almost a year of very hard work to produce it and it isn’t paying the bills.  It’s not really a matter of promotion–he has a ton of customers.  It’s a matter of the customers not paying him enough cash for each sale.

A solopreneur can only touch so many people.  You can only get the word out so far.  There is an upper limit on how many people you will have a chance to sell to when you launch, and on how fast you can grow that audience over time.  You need to be cognizant of that fact and find a product opportunity that can be priced accordingly.  Be brutally honest about how many customers you can close.  Forget models that require too many.

Advertising?  Fuhgeddabout it.  No hope in heck.  I’ve estimated that charging for your product is about 2000 times more effective than giving it away free and relying on advertising revenue.  Why make your job 2000 times harder?  It’s so attractive to sell Free until you realize the sheer magnitude of scale you must achieve.  Those are VC-only deals, folks.

Cheap Phone Apps.  Based on the information I’ve seen, Jared’s information, the problems with finding apps in the app store, and the platform owner’s huge tax of 30% on sales, I am strongly thinking phone apps are not a good target for bootstrapping or solopreneurs.  It’s too hard to market the apps, the platform owner has too much control over the walled garden, they get too big a share of your revenues (30% is huge if they’re not driving huge demand your way, and they’re not), and you aren’t able to charge nearly enough in most cases.

Phone apps have been a dilemma for me in my own business.  My audience would love one.  I have done the work to actually keep one code line running on PC, Mac, iOS, and Android, and there has even been a prototype run on iOS.  But the thought of the work involved finishing the app and questions of whether I’ll be cannibalizing my existing sales with sales that have a 30% tax to Apple or some other big guy has given me pause.  The project has been on indefinite hold while I look at other more promising ways to invest my time.

To get an idea of what you need to charge, look at some successful bootstrappers.  Take Basecamp–it’s $150 a month.  There are cheaper plans, but they limit the number of projects.  Eventually you will be likely to upgrade.  At $150 a month, you only need about 140 customers to be making $250K a year.  I see all these Solopreneurs talking about their $60K a year businesses and wonder why they aren’t aiming higher.

Or, if you have something with more mass market appeal, say like Smugmug, you an charge $40-300 a year.  It’s going to take a lot more customers than Basecamp, but if their average sale is say $60 a year, that’s about 4200 customers to do the $250K a year.  Given how many love photography, that again seems like manageable adoption to be able to succeed.  Either number is a lot fewer than Jared has already sold.

I mention that I thought my pricing was too low and I mean it.  $79 a year requires me to find 3200 customers to get to $250K per year.  It can be done, but I surely didn’t get there in 1 year or even 2 years.

If I had my druthers, I’d be looking for a niche that needs circa 1000 to 2000 customers to get to that $250K.  Hence, we are charging $125 to $250 a year or at least $99 a month.  Look around.  There are quite a few SaaS businesses at $99 a month.  I use a bunch of them to help me with CNCCookbook marketing–Wordpress hosting service Page.ly, SurveyMonkey, MailChimp, my shopping cart provider, etc., etc..

Things are priced where they are for a reason, and not simply because it’s what the market will bear.  It is not only what the market will bear, but it is also what can support a happy healthy growing business.

Suggestion #4:  Debug the Marketing and the Market Before You Ever Write A Product

Many solopreneurs are software developers.  I tell my non-developer friends about my business and they are envious, but can’t see how a marketer can get a product written without paying an engineer, at which point they’re no longer solo.  Engineers, OTOH, seem to think they can bump along and do a decent job of marketing.  As my marketer friends are fond of saying–everyone consumes marketing so everyone thinks they are an expert on it.

Here’s the thing: as a software developer, you know you can get the product built.  That’s pretty low risk.  It’s fun to dive in and start slinging code and pretty soon the demo starts showing some life.  But so what?  As I said, you know you can get the product out.  What you don’t know are two very important things:

1.  Are you solving a problem anyone cares about?

2.  Can you successful reach that audience to sell them your product?

Now here is the truly amazing thing:  you can answer both questions with very high confidence as a solopreneur in a relatively short time.  You can even do it fairly comfortably while holding down your Day Job–even better.

There’s a short list of tools and skills you’ll need to master that I’ll get to shortly, but in order to solve those two big marketing problems, you need one critical talent:

You’ve got to be able to tell a story people want to listen to, and you have to be able to do it in writing.

If you can’t tell a story people want to listen to, I think your future as a solopreneur is probably not going to go well because you’re going to be left either needing someone else to tell your story or just buying advertising.  I keep playing with advertising every six months or so.  I am very analytical and well versed in how to do it.  I have conversion hacked landing pages with great results and done tons of A/B ad testing to try to improve the results.  My conclusion each time I try the experiment is that it just isn’t very profitable.  It costs me so much to sell a customer using AdWords that it is hardly worth it.  I’ve talked to a slew of bootstrappers, and their mileage varies.  Many report something similar.  Many do not keep good enough analytics to even know, they just budget for it and spend the money, hoping it will work.  I guess if you want to depend on ads, this is also something you can know up front.  You can try ads that lead to a page and see what it costs you to get people to that page.  The trick is in what they do when they get there.  In my case, they sign up for a free trial.  That’s one conversion event.

The next thing is to convert them from the free trial to a paying customer.  That’s a second conversion event.  I do very well on the latter–about 20% of free trials become paying customers, which is very decent.  Where I fail is getting enough ad click throughs converted to the free trial relative to what the ad costs.  You can do the math:

1.  The ad costs $1.50 per click through, for example.

2.  The page converts 27% to click through to the trial signup.  Conversions for me are better if they don’t sign up on the landing page–that’s being too pushy for my audience.

3.  Once on the trial page, 25% successfully register for the trial.

4.  As mentioned, 20% of the trials convert to paying.

So if I get $79 for the sale, I can afford to pay $79 * 20% * 25% * 27% = about $1 to break even.  $1.50 is very unprofitable.  Even if I can buy ads for 50 cents, which I very seldom can, it still seems like I am giving Google the Lion’s Share of my hard work.   OTOH, if I am Basecamp, all that changes because I am looking at an annual value of $150 * 12 = $1800.  I can afford to pay quite a lot for advertising in that case.

Working through those numbers is how you debug advertising as a marketing possibility.  There’s still one other big advertising drawback even if you can afford it: it doesn’t create a sustainable marketing asset.  Once the ad has run, you quit getting value from it and you must spend more money on ads.  That’s one reason why I much prefer inbound or content marketing.  If you create great Evergreen content, and own the searches for those subjects, you own a marketing asset that keeps on giving without your having to do much.  You can spend time adding even more Evergreen content.  That model scales well for the solopreneur and small resource-limited bootstrap.

With that model, you’re relying on giving away great free information to attract people via referrals and search engine traffic.  This is the one you can really debug well without even starting a product.  This is the one where you need to be able to tell a story.  The reason is that you can start a blog aimed at your audience with an email mailing list for that blog and find out what works.  Do they care about a problem you want to solve with a product?  Write articles about the problem and see if anyone comes to the party.  Can you reach this market?  Go forth, read the relevant blogs, visit the relevant social sites, and find out what they’re talking about.  Find out what they’re interested in.  Start talking about that on your blog.  If they show up, start building your readership.  Collect their emails and start a weekly blog digest newsletter. Track your progress.

Now do some more back of envelope.  How many do you need in your fold?  I’ve typically been able to sell 4 or 5% of the folks on my email newsletter a new product.  So if I must sell 1000 to reach my financial goal, I had better have 20,000 folks reading my email newsletter.  I recommend you spend 6 months to a year building up your online content (blog) and building your newsletter before you even start writing your product.  Get a sense of how long at your current growth rates it will take you to have enough that you can meet your financial goals and plan it so that by the time you finish the product, the audience are already there, eating popcorn in their seats, and waiting to see what you can offer them.

This is what I mean by debugging the Market and Marketing before you start a product.  Nothing could be more frustrating than to turn in a ton of cubic hours building a sweet product only to have it fall far short of your financial goals for it.  You need to discover whether you can tell stories well (or write ad copy or whatever) enough to attract an audience without a product.  If you can do that and give them a sweet product,  you’re much more likely to succeed.

What about those skills and tools I mentioned?  Yeah, there’s time to figure all that out too during that 6 months to a year when you start creating content.  You have to figure out how to run a blog, (I have 4 or 5 kicking around here somewhere).  Just go get WordPress, don’t even mess with anything else.  Figure out how to use plugins.  Don’t write custom code, that’s a distraction.  You need to figure out how to collect the emails.  That’s a WordPress plugin plus an email service.  I use AppSumo’s List Builder (not here, on the CNCCookbook blog) and MailChimp.  Then there’s all the techniques of creating landing pages that convert and SEO and all that jazz.  It’s not that hard.  Seriously.  I have a clipping blog I call Firehose Press.  Every single great marketing how-to article I have ever read is there.  Read it and digest it and you will know nearly everything I know about marketing.  Go back over the articles in this Smoothspan blog.  There’s plenty of posts that chronicle various epiphany’s I’ve had about marketing along the way.

Conclusion

I didn’t write this article to knock Jared’s efforts–he’s done well by getting so many customers.  He obviously built a sweet app.  If I were to suggest differences, it would be in two areas.  Jared had wanted to succeed with his launch and with blog and social media mention.  In my mind, that’s too passive.  You have to create an engine that you can control with a throttle you can push when you need to.  My throttle is to write more and better content.  I suspect that the lack of controller marketing that could be invested in is what made Jared’s sales graph so flat, while a price that was too low is what made it so hard to live on the revenue from the product.

I didn’t write it to beat my chest about what I’m doing.  It doesn’t matter, it isn’t that big a thing, and I don’t believe it will help CNCCookbook in any way despite what some marketing folk say about such things.

I wrote it because I love being a solopreneur and bootstrapper.  I think it is the greatest thing since sliced bread.  I’d really like to see as many people as possible get a shot at it, so I’m trying to pass along what I’ve learned along the way.

As always, there are many strategies that work.  I certainly don’t have the One True Path.  But if I’ve helped clarify things even a little bit, then I will have accomplished what I wanted and I thank you for your patience reading through the post.