Even before he announced his Web App Challenge, to build an app from scratch that would reach $5,000/mo revenue in 6 mos, I was sure it would only be a matter of time til he turned his hand to a recurring revenue product.
Because once you get that first product dollar in your hot little hand, you’re hooked for life. It’s better than drugs. And subscription income is even better.
There were a few things in Nathan’s App Challenge that set my worrydar a-beeping. This ain’t my first rodeo, as you know. It wasn’t his first rodeo, either, having grossed nearly six figures off his ebook/video packages.
But… there’s just something special about The Next Big Product that makes a person go a lil crazy. (I know, because I’ve been there.)
So I got on the bullhorn (aka Skype) with Nathan and we had a conversation, which he very generously allowed me to reprint here.
We talk about…
- why doctors, lawyers, indian chiefs sound like great niches but are actually horrible
- what bootstrapping really means
- the peril of the white whale project (Second Product Syndrome, to wit)
- the issues with outsourcing
- why customer development can be one big tail-chase
I edited our Skype transcript just a tiny bit for length and content, but neither one of us is big on the chitchat so I think you’ll find it very readable (and info-packed!).
Me & Nathan Talking About His App Experiment
NOTE: Nathan is in italics. I’m in regular type.
Amy: So this is the key thing I wanted to warn you against:
“What I do know is that it will be a targeted niche. That may be lawyers, real estate agents, landscapers, insurance agents, construction companies, or pretty much anyone else.” — Nathan’s post
I know Hacker News types think that’s a great list of niches, but it’s actually a really terrible one. You can’t sell to ANY of those people.
Nathan: Okay, do you mean sell online?
At all. Bootstrapping a business is about learning to punch above your weight. The only way to punch above your weight is to use every advantage you have.
Not only do those audiences not buy things, not only are they scattered and incoherent and unprofessional and in many cases incompetent and/or broke… you’re throwing away every advantage you have.
With my existing audience you mean?
You’re right… I’m struggling with that. I want to find a painful problem to solve, but haven’t found one in the web design (ish) space.
You have $80k in the bank that says otherwise.
So I wanted to find something really targeted where there was a very painful problem that software could solve.
Targeted is worthless if you can’t find the people or they don’t want to buy. Woo! laser targeted goose eggs!
That $80k in book sales is all one off revenue, short of starting a training membership site, I don’t see how to turn that into recurring revenue.
It took four of us 3 months to build Freckle. You’re not gonna get anywhere on $5k. You will not find customers to invest in the product… unless you do presales, which I doubt you’ll do unless you have confidence the product will be done in a reasonable time frame.
My plan was to do presales. Then do all the design and front-end dev myself.
I’ve never seen anyone do successful presales for a software product, for the record.
[NOTE: Here we are talking about presales as an alternative to substantial customer investment in the product, meaning more than just a few folks signing up for $30 or whatever. At least that's how I interpreted it! I'm not saying I've never seen anyone sign up a handful of customers for a small commitment before shipping.]
That’s good to know.
So I know what position you’re in, believe it or not. It’s easy to take your success for granted and think you have to do bigger and better. Recurring revenue is nice but you’re not in any danger of having to go back to work, it sounds like to me.
No, I’m really not.
If you start chasing down a white whale, you could potentially lose all the momentum you’ve gained.
Actually, recurring revenue is fucking great, but I can’t even begin to imagine being in this biz without being able to develop my own software. Being at the mercy of a flaky freelance developer? Fucking horrible. And make no mistake, they’re all flaky; it’s simple economics.
It’s true. I can even be a flaky freelancer on other projects. I’ve seen it in myself.
I’m working on learning Ruby (I already write my own iPhone apps in Obc-C), but that will take some time.
[a little bit redacted cuz it's insider-y about a third party]
Nathan: So here’s another thought: this gives me all kinds of food for my blog. Posts that will help sell my book. My last two posts have pulled in a lot of sales the last couple days. So this project will grow my brand even more.
IF you have a project. :)
… Not that that is a reason to do it if the main idea still sucks… Right.
Take it from me. I got bored with what I had and decided I had to do something bigger and better. It ended up with me spending 2 years and $200k on something I had to shut down.
You can still build an app… altho I’d recommend you start with something in between. But if you want to maximize your return, you need to go vertical.
What’s an example of in between?
A friend of mine makes $15k/mo selling an iOS component. Themes, webinars. What’s wrong with a monthly class? We did monthly workshops for a while there and it was great, until the other stuff started making so much money it didn’t make sense and I was tired.
Yeah, I’d like to do some classes. Brennan‘s shown me how great they can be for revenue.
The more you teach live, the more you are exposed to people’s problems. People who are willing to pay, and who are already trained to give you money.
Good point. For me software is the ultimate goal, so it seems like a waste of time to delay it. Especially since I have plenty of time and money right now (though I’d rather not burn it up). Maybe I’ll look harder for a product that I could sell to my existing customers/readers.
You’ve shown with Freckle that you can enter a saturated market like time tracking and still do well.
“Saturation” is a load of bullshit :)
Really it just shows the market exists.
It’s more than that. So much more than that. If a million people use Harvest, there’s no way they’re all served well by the same tool. The presence of other products doesn’t just show opportunity, it CREATES opportunity. Because wherever there’s a big biz, there will be lots of dissatisfied customers.
Good point. I hadn’t thought about it like that.
That’s why they pay me the big bucks. ;)
You ought to develop your own software, if you’re determined to do a software biz. Otherwise you will always be at the mercy of somebody else. I don’t know ANYONE… ANYONE… who outsourced their product and made a success out of it. And considering I did freelance development for the past 12 years, that’s saying something special.
Okay. Yeah, that is.
It doesn’t mean you have to do it all.
You don’t think outsourcing could work as a temporary solution? Or is it just building on a house of cards?
You have a kid, right?
Yeah, I do.
In a perfect world, which is better — taking care of your own child, or hiring a full-time nanny?
Taking care of your own kid.
Because you can raise and care for them in the way you know best.
Yeah. And the nanny won’t love the child the way you do.
Damn. That’s a good analogy.
No freelancer is gonna love your project the way you will. And if you accidentally find one who will, look out, because that will create conflict in the end, because in the end it’s YOUR project, not theirs. But probably what will happen is you run out of money… (your budget, I mean). Then it will grind to a halt. Then, if you haven’t been doing your own dev work, you will be unable to pick it up. Or you’ll have a falling out and need a bug fixed. Or they’ll get busy with a new contract and won’t be available when you need them. Hiring & firing is exhausting, btw.
I’ve had that happen before.
Me too. Over & over. Luckily I wasn’t at their mercy.
You are absolutely right. I’ll buckle down learning Rails.
Good. It’ll be worth the wait.
For a more direct question, what do you think about Dane Maxwell’s approach to finding problems?
I’m not super familiar with it. What does he say?
Basically choose a market and talk to people until you can find a really painful problem they have. Then build a specific solution for that. So get them on the phone and try to find if there are problems (paperwork, or other specific tasks) that can be automated with software.
So, basic customer development.
I don’t like [pre-/potential] customer interviews.
Because they feed you BS?
Not intentionally. People put in that position, most want to be helpful. They also don’t really pay attention to what they’re doing most of the time.
So what you get is people being too nice, too helpful, too agreeable, too optimitsic about what they’d buy, and how their behaviors might change. Meanwhile they overlook all the really good stuff, most of the time.
IMO, the only way to get good data is to observe without them knowing you’re there… which is why I teach my students to analyze forum threads, blog posts, mailing lists, Twitter.
…[about customer interviews] The goal would be to get them to focus on the problem, and let you work on the solution.
Yeah, but look back over the convo we just had. How many of the problems I surfaced to you were ones you’d already thought of?
If I asked you, “where’s your pain with xyz?” how many would you have come up with?
Not very many. That’s my problem trying to come up with my own ideas for web apps.
I know them because I’m an expert. Not just cuz I went through them myself and am hyper-aware of it, but because I am surrounded by people doing these things all day, and I watch what they DO.
I don’t sit them down and question them.
This is another reason to not target an audience far from your own.
I guess I need to try it some more for myself and see if I can make something of it. Instinctively, I think it will work.
Interviewing to find a problem that is causing businesses pain. But that’s also where the presale request comes in. Because I need that to validate their opinion. To see if they really mean what they said, or if they were just trying to be helpful and make up things I might be interested in.
Plus I’ll look really hard at markets I can already influence.
Can’t hurt to try.
I suspect what you’ll find is that you won’t be able to get money based on them describing a problem. People don’t have very good imaginations.
[here we talk about a specific pain Nathan came up with that he didn't actually get from customer interviews, but rather observations of himself & others, which turns out to be the one he later picked to move forward with… one that his audience has… one that his mentors could use… and one that impressed me.]
So, I still plan to move forward scouting for problems, but I’ll look especially hard in areas that can serve my existing audience. Right now I don’t want to cancel my challenge, but I really appreciate the feedback. I wish I had talked to you before publishing that post.
I also plan to do some mockups and further research on the [redacted] concept. I think the market that understands how important they are would be willing to pay to get it right.
Note: I never thought it was unsalvageable. Your challenge, I mean.
The main key is to use what you’ve got and not get yourself in a position where you can’t work on your own product.
Good. But I see what you mean. I think I was making it too difficult (without reason).
I’m sure there was a reason somewhere :) I think we all tend to take our success for granted. So we want to move onto something harder.
True. And I do like a good challenge.
Me too… it’s a kind of a sickness sometimes ;)
The other thing I should say is that I have a crazy amount of respect for you and really appreciate your blog posts, training, and especially this conversation.
[Yep, I left this in because I HAVE A GIANT EGO MWAHAHA. J/k.]
My pleasure. It’s always a pleasure to help somebody who helps themselves.
Well, I should get back to my rails tutorials now. Thank you so much for the advice!
Closing notes from me
One thing I forgot to bring up is how long it takes subscription income to pick up. Even if all things go perfectly for Nathan, I highly doubt he’ll be able to get to $5,000/mo in subscription revenue by mid-summer.
But it sounds to me like that part of his experiment isn’t the important part to him, anyway.
If you shoot for $5,000/mo and get to only $3,000/mo… that’s still an extra $36,000 a year you didn’t have before, and subscription income can be grown.
Of course, there’s no such thing as passive income, not even subscription income.
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More from Nathan…
Nathan’s blogging about his challenge, as promised.