Ep. #560 - Finding Your Path to Revenue
In this episode of Startup Hustle, Matt and Matt are back for Part 11 of “How to Start a Tech Company.” The Matts talk about the importance of finding your path to revenue in order to better scale your business.
Covered In This Episode
One of the most vital things that founders should learn when starting their tech business is their revenue path. Will they sell their product or service to consumers? Will it be business-to-business (B2B) sales? Should it be a subscription? SaaS?
In Part 11 of the “How to Start a Tech Company” podcast series, Matt DeCoursey and Matt Watson talk about various ways to find your path to revenue. The Matts lay out what founders should understand and focus on to find the right revenue path for their business. They also point out some common mistakes other businesses make that hinder them from finding the right revenue path.
Listen to this Startup Hustle episode to learn more about finding your path to revenue.
Check out the complete “How to Start a Tech Company” series to gain insights on each and every stage of building a new tech company.
- All startups have a path to revenue (0:11)
- How do you know if your idea is better than it is? (5:13)
- Good plans have sunny and rainy day contingencies (11:04)
- How people kill their dreams with the wrong path to revenue (16:12)
- How do we shorten the path to revenue? (20:26)
- Staying focused on one thing early in the business (24:31)
- What’s your path to revenue? (29:58)
- The importance of finding the right talent and the right people (36:20)
- Figuring out the vision of your product (41:06)
- Start now (42:29)
- Wrapping up (43:49)
But the problem is, is what happens when things don’t go according to plan. They’re very closely related to not being up and running faster, not having your budget figured out, and not knowing that people are cheap with their money. And often, you thought your idea was better than it is now. That you only plan for sunny days, roses, and cotton candy. You know, good plans have sunny and rainy day contingencies in them. And when I say rainy day, I’m talking about what happens if things don’t go well.Matt DeCoursey
You got to narrow your focus on who you’re trying to sell your product to and what your product does. Sure, it makes it a lot easier. And it’s really hard to go, hey, I’m going to sell everything to everyone.Matt Watson
This relates both to the product and the team, right? That you know, if there’s something really special about your product, focus on that. Instead of trying to pivot and do twenty-five other things, focus on what’s really unique about your product and your strength. But also the team, if one of the founders on your team is really good at a certain go-to-market strategy, or channel partners or direct sales or whatever it is, leverage those strengths, don’t try and do something radically different that nobody knows how to do.Matt Watson
I think the best advice I can give you with the path to revenue is to start now. The sooner you start trying to get revenue, the sooner you start answering some of these questions that we talked about. If you think that that’s going to be something you’re going to figure out quickly after you build your product, it’s gonna be too late. You’re going to extend that path to revenue significantly.Matt DeCoursey
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Following is an auto-generated text transcript of this episode. Apologies for any errors!
Matt DeCoursey 0:00
And we’re back. Back for another episode of Startup Hustle, Matt DeCoursey here with Matt Watson. Hi, Matt.
Matt Watson 0:07
Hey, what’s going on? We’re live again.
Matt DeCoursey 0:11
Well, the listeners don’t know that we ruined the first version of this attempt. But that’s all in on the path of podcasting. Now, speaking of paths, all startups have a path to revenue, right?
Matt Watson 0:28
Well, they’re supposed to.
Matt DeCoursey 0:30
Is that what we’re going to talk about today?
Matt Watson 0:32
Yes, it’s pretty important is this?
Matt DeCoursey 0:34
Do we have to call this episode 11.1? Yes, we are on a second truck. For those of you that are listening, we did record this episode once. And anyway, technical issues abound and it didn’t sound good. So we’re going to do it again. Which means we should have an even better episode because we got some practice in SB. In regards to today’s episode, it’s brought to you by Gusto. Gusto is a simple online payroll and benefits platform built for small businesses. Gusto automatically files, your payroll taxes directly deposit to your team pay. Plus, you can offer all kinds of benefits 401k, health insurance, workman’s comp, all of it. And because you’re Startup Hustle listener you get three free months, once you run your first payroll, go to gusto.com forward slash Startup Hustle once again to gusto.com forward slash Startup Hustle. Matt, there’s a link in the show notes, if you can’t remember what I just said. So you know, if you needed to go to that, do it. Matt, what’s revenue?
Matt Watson 1:35
Money, show me the money.
Matt DeCoursey 1:39
Now, when I say path to revenue, I’m actually referring to a common phrase and one that I used in my book, Million Dollar Bedroom, in which I interviewed you for, but I think a lot of businesses get it wrong. And you know, we are not able to use our crystal balls effectively. Did I say crystal balls?
Matt Watson 2:02
Yeah, you’ve got a nice pair of crystal balls.
Matt DeCoursey 2:05
I know, I know, a mind isn’t working now. So understanding the path to revenue and businesses is difficult. And it getting it wrong, causes a lot of problems. And you know, we’re here we are trucking through the process of starting a tech company. I think the path to revenue with tech companies is even harder to predict.
Matt Watson 2:27
Well, that’s, I mean, so many founders think that if you build it, they will come right, like I’m gonna build this thing. And everybody’s gonna magically show up and buy it, which doesn’t work that way.
Matt DeCoursey 2:37
Never in the history of tech startups. Has that been the way that it worked? Now? Let me just go ahead and read the definition. That’s just the literal definition of revenue and says in accounting revenue is the income or increase in net assets that an entity has from its normal activities. commercial revenue may also be referred to as sales or turnover. Some companies receive revenue from interest, royalties or other fees. That’s the technical definition. But I like your money. How long? And this isn’t capital? Like, yes, money is capital, but you can’t count revenue as bringing in investor money. We’re talking in this episode about how long does it take you to put $1 of a client, customer user, whatever you want to call it in the bank?
Matt Watson 3:28
Well, and when you’re starting a new business, there are a lot of different go to market strategies and ways to sell your product, right? It could be a licensing strategy, it could be partners that are reselling your product, you could be selling it directly. I mean, there’s a lot of different ways you can go to market with your product and they’re all different paths to revenue. The key is you got to find one of them.
Matt DeCoursey 3:51
Yeah, now we’re going to talk you know here in my in my trusty shownotes we’re going to talk about how to grow your revenue but I want to start first with some things straight out of my book million dollar bedroom, which is how people kill their dreams by not understanding their path to revenue. Yes, Matt. That’s the title of the section. Now I say kill the dreams because if you’re relying on if you don’t understand your path to revenue and until you’ve gone down it you don’t what not what’s affected by a faulty judgment or your when you’re not understanding your path to revenue? Like what is that effect like before we get into the things that kill the dreams? Like why is that why is that problematic?
Matt Watson 4:41
I mean, you could end up with your home foreclosed and divorced. I mean, that’s part of the reality right?
Matt DeCoursey 4:50
You went with the Hail Mary on that one. You went all the way down. You said the receivers deep. Yeah. Well, I was looking more along the line. Yes, that could occur but it He’s gonna ruin your business plan. It’s gonna ruin your projections, it could ruin your momentum and ability to attract other investors as well.
Matt Watson 5:09
And your whole life could ruin everything depending on this.
Matt DeCoursey 5:13
Yeah. Do you see now you guys listening? Can’t see. But I’m pointing to Matt, you see that bald spot on my head? That is that, yeah, I know, because that is directly attributed to stress found and encountered on the path to revenue over the years. So yeah, you’ll lose some hair, you’ll listen sleep, and you might lose your mind, because that all occurs to so. Alright. So on this quick list of how people kill their dreams by not understanding their path to revenue? Well, a lot of times, it’s because they thought their idea was a lot better than it was.
Matt Watson 5:49
You know, every idea sounds great when you’ve got a beer in your hand, and you come up with it, and you’re hanging out with your buddies. And they’re like, yeah, man, that’s a great idea. I mean, everybody thinks they’ve created the next best thing in the world. So
Matt DeCoursey 6:02
yeah, and we hear that a lot. I mean, we really do. So you know, when it comes to your idea being better than it is, I mean, it’s you want, you should be optimistic about whatever you’re doing at the same time, you need to be realistic. And I think that’s one of the things that in the conversations with different people we’ve had, or I’ve had over the years, is really prevalent is, you know, they’re they’re setting their goals, you’re looking at their plan, you’re looking at their projections, and here they are, with a commanding amount of market share in six months. What do you find, you find the same thing.
Matt Watson 6:39
I mean, everybody thinks they’re going straight to the moon, for sure, you know, Lambos, and moons immediately, everything is gonna be a huge success.
Matt DeCoursey 6:48
So and then also, they often think their idea is better. So yes. All right. So next on the list, is a lack of understanding of how hard it really is to get people to spend their money.
Matt Watson 7:01
And, you know, the number one thing I always tell people is just like me, it made my job, it’s sacrifi, right? Like, I got shit to do, I got problems, I got my own dumpster fires. And those things are what have my attention, you can come by and try and sell me like slot, the next best thing since sliced bread. But if it doesn’t solve one of my immediate problems, I don’t care, I got other things to deal with.
Matt DeCoursey 7:26
And you got a world of free stuff out there. And I mean, you’re just competing with it. You know, that’s why business to business solutions are easier to sell on many days, because people that don’t own the company are often making the decisions on how to spend the company’s money, which can be done a little free and loose. But when it comes to business to consumer products, man, people are cheap. And you know, I the an easy example is my wife, Jill is learning to speak French and using the Duolingo app. Now recently, I saw that they had raised money at their unicorn valuation, and 3% of their users are on their paid platform. 3%. And, you know, that’s the thing is most most people when creating projections and plans and their path to revenue is usually not planning on 3%.
Matt Watson 8:20
Matt DeCoursey 8:23
You have a free product at sacrifi. Right?
Matt Watson 8:25
Yeah, we do. It’s called prefix. And we get about 5% of those people end up paying for our other product. And that, you know, I always warn anybody who wants to sell something to consumers, because they just don’t pay for anything. Versus if you’re selling to a business, you know, like, say, stuck fire Full Scale, or some sort of enterprise. You know, what the difference is between $2,000 or $5,000? Not much, nothing really. Right? Like, you know, you’re just working with totally different budgets.
Matt DeCoursey 8:57
So yeah, and also, you know, like a business spending money as opposed to a person, there’s a lot more into that, you know, businesses have bigger budgets, like you mentioned, and have the ability to spend it. And also, it’s a lot easier to make a decision to spend someone else’s money than your own. In a lot of cases. Really, in the end, people are cheap. They’re just cheap, they don’t want to spend money. Alright, so next in line of how people kill their dreams by not understanding their path to revenue, you thought you had your budget figured out, but didn’t
Matt Watson 9:31
you know, when that’s the problem is you you think you need a certain amount of money and you’re gonna build the product and you’re gonna ship it and everybody’s gonna like it and then you’re gonna sell it and you’re gonna hire another salesperson like, you think you got all this stuff figured out and then one little piece along the way doesn’t work out and next thing you know, your whole budget is screwed.
Matt DeCoursey 9:49
Yeah, and that’s that ripple effect waterfall chain reaction, whatever you want to call it, where, you know, especially with tech companies, it takes so long to build software, especially from scratch and a lot of times You know, you can’t do the next thing until you’re done doing the thing you’re on. So if you have small teams, a small amount of people working on this stuff, and if you get behind by a month, it throws the whole timeline off. And it can affect the path to revenue, especially in, you know, what I lovingly refer to as day one startups, meaning like, you’re on day one. And here we go. Like you don’t know how long it’s gonna take to build stuff. And that’s, that’s where that’s why we did the episodes about business planning tips and all of that, not trying to be Debbie Downer people. Look, the mission statement of this podcast is to tell you the real truth and not sugarcoat it. That’s all we’re doing. You know, and I’ve learned this lesson just so many times, man. So you know, here you go. You thought you’d be up and running faster next item on the list? Or that was the item on the list. All right. So here we go. You’re you planned for only sunny days, roses and cotton candy,
Matt Watson 11:02
and unicorns and clouds.
Matt DeCoursey 11:04
But the problem is, is what happens when things don’t go according to plan. They they’re very closely related to not being up and running faster, not having your budget figured out, not knowing that people are cheap with their money. And often you thought your idea was better than it is now in regards to you only plan for sunny days roses and cotton candy. You know, good plans have have sunny and rainy day contingencies in them. And when I say rainy day, I’m talking about what happens if things don’t go well. What part of your plan in your budget? Well, I refer to the OSHA outline. What’s Oh shit. Oh, shit, we didn’t think about that. Oh, shit that went wrong. Oh, shit, Matt quit. You know, like, there’s a lot about chips and businessman. I mean, it really, really can get in your way. And yeah, well, it’s like, I don’t know. I mean, Matt, do you have any examples of, of rainy day stuff? Oh, a pandemic? How about a pandemic?
Matt Watson 12:07
Yeah, that’s a good one. Yeah, I think in any kind of startup, you know, we talked about the the planning and budgets and all that stuff, but it’s just, you know, you plan like, Oh, we’re gonna raise money, and then we’re gonna do this, and we’re gonna do that, and just, you end up not raising money. And, you know, it’s just you have to plan for you have to plan for Worst case scenario.
Matt DeCoursey 12:31
I mean, when it comes to raising money, I think one of the things that a lot of people that that a lot of people just don’t understand, or they don’t have a feel for is that takes a hell of a lot longer than maybe then it should. And most of the time when you’re reaching out, especially if it’s institutional, if you’re looking at VC or that kind of money. I mean, you’re looking at six to nine months, and sometimes five or six months before you even hear yes or no, yep, it takes a long time. And that’s the problem, though, because people count on these funding rounds. And I mean, I’ve had countless calls and emails, and that how long is your runway there, like, six weeks, but we just started talking to investors. And I’m sitting there thinking, Oh, my God, this is gonna get ugly for you.
Matt Watson 13:17
Well, the investors are gonna get really good terms, too, because they know you’re screwed, and you gotta take the most,
Matt DeCoursey 13:21
you’re gonna be desperate, you’re gonna be wanting to take it. And that I mean, that’s the problem. All right. So next on the lesson, this one’s my favorite, because this is like a, this is a big splash. This is like a triple shot of reality, you thought things would actually occur in a logical manner. Allow me to explain, Matt. Okay. So if you go to business school, or just like read a book about how stuff works in business, it’ll often say, A to B to C, to D, to E to F to G, meaning those are steps or things that occur in the timeline. Now, in reality, it never occurs like that, because this is make this up on the fly. This is a more likely scenario, you got through a to only realize that B should have been in position D. But you needed the person that was operating in SEC in the CSTEP, to get something else done, but they quit because they had a weird and office relationship with EA. And they broke up and C didn’t feel comfortable anymore. So they quit and it took longer to replace that person. So now, A to D to F to G to B to C to then maybe could be the plan. I don’t know it can be different every time the fact is, is things never ever occur in a logical manner. They have Murphy’s law for a reason.
Matt Watson 14:49
And especially when you work with software, and you’re trying to figure out you know, a new product and launch the product and how you’re going to sell it and all those things. You run into issues where it’s actually different customers can pull you in different directions to write, you’re like, Well, we thought we would may add these features to the product. But now I got customers demanding that So instead, I can’t do these things. And this other customer is not happy because they want those things or whatever, right? I mean, just you just get pulled around in all sorts of different directions.
Matt DeCoursey 15:19
You know, I’ll give you an example of another software related example. You think you’re on track, and then Google Chrome issues, some kind of update, and it breaks a bunch of shit on your front end. And now you got to go mess with that, rather than actually being on time. So now you’re behind. Or, for example, if you’re building an app, iOS 14 came out and broke half the App Store.
Matt Watson 15:42
Thanks, Apple. Yeah, yeah,
Matt DeCoursey 15:45
well, thank you, because they are trying to shield your your data a little better, but at the same time, breaking half the App Store. And so there’s just a lot of unforeseen things that occur can occur. And now when it comes to people, I find that people are the reason that logic usually doesn’t prevail. Computers are actually pretty logical are can be trained to be they just like, hey, I’m going to do zero or one. People. Not so much.
Matt Watson 16:12
Humans make lots of mistakes.
Matt DeCoursey 16:14
They do they do. Okay, well, that’s my list of how people kill their dreams. And I don’t know, man path to revenue, you know, I think we should give a couple other real examples. And we were talking a series about how to start a tech company, it can take years for a tech company to actually get any revenue. So gag about two and a half years didn’t stack up our tech while
Matt Watson 16:38
it did. And actually a great example of this, based out of Kansas City was I verify, which ended up having an exit for like over $100 million dollars, I think. And they had taken basically a patent from the local college around scanning the wide of your eyes as a for biometrics, right? And I actually had the opportunity to invest in it. But I didn’t invest in it, because I didn’t understand their path of revenue. I’m like, Okay, this is cool technology. But how are you actually going to make any money with this? And it took them years to figure it out. Eventually, I think they got, they got that in, embedded in all the Samsung phones and stuff to like, unlock the phone and do that kind of stuff. It took them a long, long time. And as an investor, I didn’t invest because I didn’t understand the path to revenue. A few years later, they sold for a bunch of money, and it was a big exit. But they sold to Alibaba, I think. So you just never know. Yeah, you just never know. And as an investor, I’m scared away from it. Because like, I just don’t see how you’re gonna make any money.
Matt DeCoursey 17:34
So I’ll give you an example of my brother and my brother in law and my sister are both doctors. And several years ago, he came to me with an idea, you know, I got that call. Hey, I want to talk to you about an idea. Yeah. So apparently, in the ER, where he was an ER doctor, people come in all the time, and they’re passed out, and their phones in their pocket, right, and they can’t unlock it, they can’t get into it for a number of different reasons. And when you are unconscious, you do not have the ability to tell a doctor or a medical professional, what you’re allergic to what medicines, you can take what you are taking. So they wanted to he wanted to put a badge on the outside, like, it’s for sign in, you know, like a little like, whatever that snake around the coil. I don’t know, it looks like a barbershop thing to me. But anyway, so they wanted to put that out and be able to open someone’s phone, if they did a medical thing. He said, This would be amazing. It would save insurance companies tons of money, it could save lives, it could do all of that. And I looked right at him. And I said, Chris, do you know how long it is gonna take you to sell this to someone if it is even sellable? And he said, Well, what do you mean, this could be huge, like Blue Cross Blue Shield would save hundreds of millions of dollars? I said, Can you prove that to someone? And how long do you think it’s going to take you to get in front of a decision maker. On top of that, you’re also talking about platform level stuff that affects the phone. I said, this might be one of those things that’s just best that the world gives for free. And, you know, he was he took the advice and didn’t really do anything with it. Although he didn’t like the advice and not too long later out. There’s actually a function and apple that you can turn on for that. So that’s exactly what happened is Apple basically gave it away. But you would have been struggling for years to realize any type of revenue from now because you’re talking about things that are so intangible and so unprovable, you can’t it’s like, Okay, how many of what percentage of our listeners have benefited over the last three years and nearly 600 episodes from listening to this show? I don’t know. How would I even begin to prove that it gives you can’t, which makes it very intangible and difficult to prove. Now one of the things Matt that you can prove is that taking care of employees has never been more important and for years gussto has been helping more than 100,000 small business owners run payroll offer benefits on onboard new employees and more. That’s why they call it the people platform and doesn’t just look nice, it works. So your payroll taxes filed deductions calculated, your team gets paid. It can even offer health insurance 401 K, so you get three months free, there’s length A shout out Matt’s gusto.com forward slash Startup Hustle. You can focus on your path through revenue if you don’t have to do all that shit that I just mentioned.
Matt Watson 20:22
Matt DeCoursey 20:26
Okay, now, for the exciting part, we needed to get the cautionary tales out of the way. How do we shorten the path to revenue? How do we make it a little less treacherous?
Matt Watson 20:38
Well, you got to narrow your focus on who you’re trying to sell your product to, and what your product does. Sure makes it a lot easier. And it’s really hard to go, Hey, I’m going to sell everything to everyone.
Matt DeCoursey 20:51
You know, I’ve made that mistake. And I, you know, I’ve been using Giga buck as an example. At first, I was like, man, anybody could use this. And then I was sat down to market it, and I was like, Oh, shit, anybody could use this. Now? Why is what? Why does what seemed like a strength, suddenly a weakness?
Matt Watson 21:12
Well, it’s because the buyer also can’t identify if they’re a customer. You know, like, I use the example, I think before on another podcast, I was looking potentially for a lawyer to help me with a traffic ticket. Well, if I go to a lawyer’s website, and it looks like they, you know, do divorce cases or something, or business law, like, I don’t know if they can help me, but if I go to one right on their homepage, like we were the specialists in traffic tickets, I’m like, All right, I know I’m in the right place, you know, the buyer has to be able to self identify that you have the right solution for them.
Matt DeCoursey 21:45
So establishing your value proposition and defining the benefits of what you do, and really figuring out who your ideal customer is. Yep. And, like, Who’s your ideal customer, like, Oh, that’s a who sacrifice ideal customer?
Matt Watson 22:03
Well, and the problem is early on you, we all think it’s everybody. And that’s the biggest mistake we make. And the more you can do to hone it down to a very specific group, the better. So sacrifice. target audience is software development managers, it’s directors or above of software development teams. But it gets you get deeper into that, right? Because it’s also potentially the industry or what country or then or, you know, all those kinds of things, and you have different buyers, right, the type of buyer at a really large company is very different than a very small company. And the buying process, how fast they make decisions, vendor approvals, all that sort of stuff is very different. And depending on the type of product that you sell, you may do a lot better in smaller or larger companies. Yeah, and
Matt DeCoursey 22:53
so it takes time to figure this out, you know, and we look at Full Scale. So it’s a company we own together. FullScale.io, check it out, you know, we’re coming up on three years of being in business, we just hired our 200th employee. Whoo. And the thing is, is I mean, quite honestly, that it took us about half of our timeline so far, to truly figure out who our ideal customer was, we had to try a lot of different customers, and get it right now we really know like, we’ve got it zeroed in, like, it’s I feel great. It’s very precise. It’s very predictable. And we know who we’re great at serving and what kind of clients are because we’re not built for everyone. And that’s that’s one of the things that’s a real challenge in the beginning. Because here you have a new business, it’s burning cash, you want to get down that path to revenue, and it’s easy to go yes, yes, yes, yes, yes. And you should maybe be going yes, no, yes. No, yes, no. And not saying yes to everyone, because one of the things that can link them the path to revenue. And you and I’ve both been down this in different businesses, like once a Giga book, we were talking to an online clothier and we were trying to we thought they’d be a whale of an account. And they weren’t. And we burn up like a shitload of time, energy, effort and focus on trying to find them a solution and it didn’t pan out. It made our path to revenue even longer, because we’re focused on that rather than just trying to generate revenue in general. And you have a tip, a similar story from your VinSolutions days, right?
Matt Watson 24:31
Yeah. And it’s really hard when you’re very early, and you’re trying different things and you keep chasing customers, that becomes really hard, right? I mean, think about Twitter as an example. It’s the simplest thing in the world, right? They could have added all sorts of functionality and eventually been like Facebook, but instead they decided like, Nope, we’re not going to do all those things. We’re gonna stay focused on this one thing. And as an early startup, it’s really hard sometimes to do that. You know, My example from from VinSolutions, I think you’re talking about, I think was more about our go to market strategy, we had a partner that was going to resell our product. And we thought we were like going to be billionaires because they were going to resell our product. It was the largest company in the industry. And they had like hundreds of salespeople. And, you know, a year later, they didn’t do anything, and it was a complete waste of our time. And that’s where it’s really hard when you’re when you’re early on, as you can chase all those different sorts of customers or partnerships, and you think they’re all going to work out. But you always gotta have Plan B and C working at the same time, that’s for sure.
Matt DeCoursey 25:35
Another thing you need to understand when you’re a brand new business is those big enterprise accounts. They know you’re brand new, and they’re usually sophisticated and smart enough to know that isn’t a good thing for them. And you know, so I mentioned that example, I had two other examples with GigaBook, one of which was the city of New York. And they needed a booking thing because they were doing some kind of training and they were going to have 250,000 bookings over three years, I came in second place out of 30, which is really interesting, because they call you to tell you, you came in second place and ask you, if you still want the deal. If the first place finisher, somehow falls through, which is the shittiest phone call in the world to get because you recognize the number and you think you got the deal. And then you find out you didn’t, and had another one with a world we came in second place at a worldwide furniture store. I won’t name them, but they have a shitload of locations. But both of them said, We love what you do we love the product, but we’re not positive, you’re a big enough company to handle what we need. Meaning like you have five employees. Yeah, we’re not 100% confident you’re going to be able to deal with this. So it makes it hard. And you know, that’s really frustrating. It’s kind of like, when you’re younger, and you’re like, I want the job. And then you need experience, how am I gonna get experience if no one will ever hire me?
Matt Watson 27:04
Well, yeah. And that goes back to the point of your ideal customer, right? Like when you’re really small, you know, you can’t necessarily serve a super large accounts, because they’re just not going to trust you. That’s, that’s another part of it. And something else I want to mention, you talked about different revenue streams and business models and getting other people to resell your product is a very, very difficult thing. For example, VinSolutions, we had people all the time that wanted us to resell their product, but it’s like, we make a shitload of money selling our own product, why would I try and sell yours? Right? Like, the only reason, the only reason we would do it is if it helped us sell more of our product, then it was a win win. And it made sense, right? Like, for example, we had an integration with Kelley Blue Book. And so, you know, we needed that Kelley Blue Book integration, because it was part of our product. Otherwise, we wouldn’t have just randomly sold Kelley Blue Book, like when we don’t have time for that. So that’s the hard part about working with resellers is it’s really got a, you really want to partner with people that it helps them make more money, somehow, right? It helps whatever their core business is to resell your product. But getting resellers are very difficult.
Matt DeCoursey 28:17
Well, that’s and those didn’t, let’s throw out a couple examples of revenue streams. You mean you have direct sales channel partners and white label agreements. And what we were just talking about channel partners are that’s where they’re going to plug in your offering within something else they sell, I think an easy example of the channel partner, is anything software related where you’ve signed up for a service, and they’re like, do you want to add this for $5 a month? And it’s not their product? It’s someone else? That’s
Matt Watson 28:47
part for sure. If you go to GoDaddy and register domain, they try and sell you 25 things through the checkout process.
Matt DeCoursey 28:53
Well, that but that might be their own stuff that might be channel partners. So different. Well, I’ll give you an example might be if you went to XYZ hosting company, and they said, Would you like to install stacker fie.
Matt Watson 29:06
Sure. There you go. Know that? Yeah,
Matt DeCoursey 29:09
that’d be a channel partnership. Yeah. But here’s the thing is those relationships take forever to create, and then you got to build it in? Yep. It’s not just like, Oh, sure. Just throw my name in there. We’re good. It’s never like that. White Label agreements, same kind of thing. There’s a lot of complexity. There’s a lot of legality, there’s a lot, I don’t know, they usually don’t happen fast. Direct Sales might be the fastest path to revenue.
Matt Watson 29:35
Well, that gets back to the issue we had at VinSolutions. I mentioned earlier, that we bet on a partner that was a channel partner to resell, when we should have been spending that time beefing up our own ability to do direct sales. You know, it’s just really, really difficult when you’re 100% reliant on a partner, but when it works, it works really really well too. So I’ve also seen it work really, really well but it’s, it’s difficult.
Matt DeCoursey 29:58
Now back to my point earlier, are the most most businesses that are going to be able to really generate heat for you as channel partners, they’re not going to love it that you’re five months old. No, already, you’re old. I mean, they’re not, they’re just not they because there’s a sea of competition out there that probably does something similar and might do it better. And that’s the next thing I want to talk about is, we’ll look at when you’re you want to chart your path to revenue and look at what your competition does, you get two options, you can go toe to toe with them, or you can do something they don’t.
Matt Watson 30:31
Well, and part of it is understanding their business model, right? You know, you’re trying to figure out your path to revenue. It’s understanding what was their path to revenue? What is their business model? How did they make money at this? Did they just license the intellectual property? And they didn’t build it? Or did they? Do they resell through channel partners? Like they resell through big box stores? They resell through Amazon? Or do they sell it direct, like you can only buy it from their website, you know, understanding how your competitors sell their products. And you know, if they’re successful at that, then you can guess that you’ll be successful in the same model.
Matt DeCoursey 31:04
Yeah, and I agree and, and by the way, and please listen to this listeners. If part of your path to revenue involves the idea that you’re going to acquire someone else’s users that switch to your platform, please put that number really, really, really low. Because unless you’re like remarkably better, it is really hard to get people to jump platforms, you got to be not 30% Bad or not 50% better, like two to three times better, because people are habitual. They like what they know how to use, I’ll put myself in the list. Like there are things that I use, and I don’t even care if there’s something better I already know how to use it. I don’t give a shit about switching, especially if I’m going to save $3 a month.
Matt Watson 31:50
If I gave you an Android phone for free, would you take it?
Matt DeCoursey 31:53
Nope. You know why? Because I’d have to learn how to use it. Yeah, dude, it’s the same thing with like a with a Windows based PC. I’ve used MAC for so frickin long. I don’t think my dad calls me all the time and two things he’s like, should I just switch to a Mac? No, because then I’ll have to teach you how to use that. And then he asked me questions on on the Windows machine that he has is like I managed to put my tray over on the side of the monitor. How do I change that? I was like, I don’t know, I have no clue, dad, I really don’t. But it’s a setting somewhere that I don’t know where it is. So and then he’ll keep calling me back until I eventually just Google it, which would be the best option for him to do so. Okay. So on that path to revenue, focus on your strengths, especially early focus on the things that you do well, and put your energy, your effort and your push behind that trying to be good at six different things before you’re great at one is a shitty plan.
Matt Watson 32:52
Well, and I think this relates both to the product and the team, right? That you know, if there’s something really special about your product, focus on that, instead of trying to pivot and do 25 Other things focus on what’s really unique about your product and your strength. But also the team, you know, if if one of the founders on your team is really good at a certain go to market strategy strategy, or channel partners or direct sales or whatever it is, leverage those strengths, you know, don’t try and you know, do something radically different that nobody knows how to do.
Matt DeCoursey 33:24
Yeah, so we went through this at Full Scale. And you know, here we are rapidly growing company, we had 100 employees after a year, which is crazy. Like that’s frickin crazy. Like, that just doesn’t happen a whole lot. And we sat down at one point, we’re like, okay, there’s a million things that we should we can or could do. But we shouldn’t, you know, so we decided to focus on placing developers, not virtual assistants, not low level, like website builders, we wanted software builders and developers, and decided that in order to support that, we needed QA testers, project managers, and very little past that. And then we knew that there was enough of a market and it fit well, with our own experience, understanding and expertise. We stayed within lanes that we were also comfortable driving then is that fair to say? Yeah, absolutely. Yep. And you know, that’s the thing. So what are you good at? And it made it easier for us to sell and, and honestly, Matt, and, you know, I was the salesperson for the first two or three years. It made it a hell of a lot easier to be credible. Because we could talk, I could talk to a potential client and say, hey, look, I’ve been in your seat. I know what it’s like to be a founder. I know what keeps you up at night, and everything that we’ve built with our company is designed to make that easier. And that is probably the best example of a value proposition. Hey, we can write code we can charge you money. We can do this. We can do that. How about we help you sleep better at night? Because honestly, that’s really what people want in the end is for life and things in their business to not be a pain in the ass.
Matt Watson 35:07
I just want things to work, man. That’s it. Like, dude,
Matt DeCoursey 35:11
I pay a premium for that, wouldn’t you? Yeah,
Matt Watson 35:14
that’s why I have an Android phone.
Matt DeCoursey 35:16
That’s why I have an apple. ID. Some of that’s a bit you know, it’s like it. Here’s the thing, though, I guess that you wouldn’t switch to Apple? No way. Forget it. See, but it’s it. And no one’s right or wrong. It’s a comfort day, guess what? They both make calls. If I called you right now, you would receive the call, right? Yep. For me, I surf the net. I use some simple apps like Slack. I go to espn.com. I take a few pictures. And I’m good. I don’t; I don’t have a whole lot of use case. All right. So this feels like the anti path to revenue, because we’re going to encourage you to spend more money in this next one, but invest in talent. I think people are super cheap with their sales and bizdev and marketing people in the beginning. And they’re like, Yeah, well, we’ll figure it out. I’ve done it. It’s not a good plan, find people that can sell shit, but they get paid so much. It’s because they’re good at bringing money back to the castle.
Matt Watson 36:20
Yeah, and I mean, this goes with software development, too, right, you can find the cheapest person possible to that you think’s gonna build the software, but then like, six months. Again, it doesn’t it doesn’t work, right? And it’s full of problems. And now I gotta do it all over again. And it’s hard. Because if you don’t have a lot of money, it’s really hard. And that’s where sometimes you have to give your people equity in the company and stuff like that, and beg and borrow or have them work part-time even. But talent is key. You know, one of the big moments at VinSolutions was when we hired a specific individual to be in charge of sales, that had all the connections and worked in the industry forever, could call up, you know, the owners of all sorts of, of the businesses that we were trying to target. And he just lit the fuse, the rocket got lit the minute he started. And sometimes it’s having the right talent and the right people on the team is the key.
Matt DeCoursey 37:13
Yeah, well, we went through three salespeople before we found our current salesperson, Cooper, you’re doing a great job. And, you know, with that we say invest in talent. You know, I brought in someone that had a lot of history with sales, but didn’t have a whole lot of history of attack. So in that we had to create a little one two punch, you know, I kind of turned more into a sales engineer. That’s exactly what I was doing. Right? Before we hit record. Today, I was working with a client that’s about to start with Full Scale. And I was giving them an approach pattern. I’d say this is my suggested approach, why they wanted to talk to me, I got a referral for this client from someone I knew really well. They said, Matt will take good care of you. And I said which Matt? I really did say that, but it’s kind of funny. So okay, you know, one other thing I wanted to kind of breeze through this. This one is, you know, understand what your performance indicators are. And by performance indicators, in the beginning that especially if you’re a tech company, it’s like, okay, understanding, Matt, what talked about CAC,
Matt Watson 38:25
customer acquisition cost, that’s a big one, customer lifetime value. CAC to LTV ratio is a big metric that people track. customer acquisition cost is huge. And early on your customer acquisition costs may be actually dramatically higher or lower than normal, they could be lower because you’re able to get some of your friends and local network of people to sign up, right? Like at Full Scale, we went through that early on, it’s okay, we knew a lot of people, it was easy to get those customers, and you get to a certain point where you’ve exhausted that and we’re like, Okay, now we gotta go find people that don’t know us. And the customer cost to acquire those customers is totally different. But there’s some other key metrics that you need to know are things like your margins, like, are we making money when we sell our product? Or do we think we’re gonna lose money on every deal, but somehow make it up in scale? Yeah, well, there’s other metrics.
Matt DeCoursey 39:15
Well, hang on, let’s talk about that for a second. Because that’s a mistake a lot of people make and planning is they run a very small test. And they’re like, oh, it’s only going to cost $10 per sign up. The problem is, is that caps out quickly, and and the same way you’re looking for a hockey stick and your revenue, your customer acquisition cost, and all of that can have a hockey stick look to where signing up five to 10 people a day might only be $10 to trial. But if you want to sign up 100 Today, it doesn’t scale up four times. It does. Yeah.
Matt Watson 39:51
Well that way because
Matt DeCoursey 39:55
and that’s related to limitations within your own market or people that are searching for luck. gain or whatever however it is that you’re finding them. And that can be, that can be challenging. Okay, so we went through a lot of stuff here. I think that that we have effectively outlined some ways to grow your revenue, given some cautionary tales. And before we get into the founders freestyle and give the best advice that we can give, I just wanted to give another thanks. And a shout out to gusto. If you run a startup, you have to try gusto, payroll, deposit, paychecks, and file payroll taxes automatically. You can get your employee health insurance, onboarding, expert HR and more, you can get three free months, go to gusto.com Ford slash Startup Hustle, link in the show notes, Matt, you need to go down there and click it. So I’m amazed at how many of our guests that have been on gusta sponsored episodes are like, Yeah, we use it too. So that stuff is a pain in the ass. It’s a challenge. And there’s a lot of complexity to it. Okay, here we are founders freestyle, Matt, what’s the best? What’s your best advice? What are your closing arguments for a path to revenue?
Matt Watson 41:06
Yeah, I think the key is you’ve got to, you got to figure out the vision of your product, and where you think the business is gonna go who your target customer is, right. And you don’t want to, you know, you want to stay true to your to your mission, but you got to listen to your early customers and their feedback, and you got to listen to their feedback. And if there’s an echo chamber there, and everybody keeps telling you like, oh, no, we don’t like this thing, or no, we don’t like this thing. Or it really should do this, or really should do this. You got to listen and get that that validation as you’re trying to figure out your, your path to revenue. And sometimes you got to make a big pivot. Sometimes you’re like, look, we’re we’re trying to do this thing. And just like, nobody wants it. But we could take the same technology. And we could reuse it in a slightly different way. And there’s a whole different niche audience that would use it. And that’s what you got to do. A great example was the local company that was trying to help people fix their speeding tickets, right? And it’s like, well, how do we attract customers? We don’t how do we get people that want to use this service? And then they pivoted like, well, we’re gonna focus on truck drivers, because they desperately need this. And that one little pivot turned it into a big success. And sometimes it’s just a small little change. That makes all the difference in that path to revenue.
Matt DeCoursey 42:17
Before I before I go, I wanted to apologize for asking Matt about his CAC. And your crystal balls?
Matt Watson 42:27
That’s okay. It’s all right.
Matt DeCoursey 42:29
Yeah, I know you like talking about both. But you know, there’s appropriate and there’s not? Yeah, I think the best advice I can give you with path to revenue is start now, the sooner you start trying to get revenue, the sooner you start answering some of these questions that we talked about some of the things that, you know, like you need to understand if you’re waiting to try to sell what you’ve got to try to create marketing content, any of that. If you’re, if you think that that’s going to be something you’re going to figure out quickly, after you build your product, it’s gonna be too late, you’re going to extend that path to revenue significantly, you know, many of the things that Matt mentioned, it takes a while to understand you got to understand where that cost is gonna go up, where it’s gonna rise, what you need to figure out. And sometimes you think that your value proposition is something and people are less tuned into a different channel. So it just takes a little bit to figure that out. I think you can never start generating hype too early. Matt, you know, I love high. So you can create a number of different ways, but it takes time. Like, we love content marketing, but people say ask all the time, they’re like, how do we do that? I’m like, we got to start now. If you if you hope to have it be any good in six months.
Matt Watson 43:47
Yep. It takes time.
Matt DeCoursey 43:49
It’s just the way it goes. Well, Matt, part 11 of 11 is and the books I love and point one I should say we made a better version software version. 18.
Matt Watson 43:58
Yep. And we forgot something last time that we gotta mention this time since sales. Baby, sales does cure. I should have led the episode with that. Yep, focus on the money.
Matt DeCoursey 44:13
Maybe we should just set that on repeat, like over and over and over and over. Matt, I’ll see you soon for part 12.
Matt Watson 44:21
See you later.