As you might remember, beginning of this year I announced that we would switch our Ruby on Rails consulting and development business Zorros from a service business into a products business.
Our primary goal was to be break even on recurring revenue (bootstrapped of course). This means that the automated stream of (products) revenue should equal the cost of running our business (paying all the wages, hosting, bills, …), so that we wouldn’t have to worry any longer on getting one off deals month after month.
Did we succeed?
No, we are not yet break even purely on recurring revenue. So, theoretically spoken, we did not succeed our challenge.
Do we consider 2013 as a year of success?
Hell yes we do! Here is why…
Money money money, must be funny
First of all, we have built up around $6K in automated monthly recurring revenue, which will continue to flow in during 2014, and is still growing month after month. Purely money wise, this means that we already have 72K (=12*6K) of revenue settled for 2014. That’s 72K less of worries, sales and sweat. A great way to start the new year I would say :-)
The first 100 paying users
But more important than the actual money, we got our first couple of 100 paying SaaS users, starting from nothing. We gained A LOT of insight into how to market and launch SaaS products, how to convert users, how to optimize the sales funnel, the website copy, drip campaigns, content marketing and so much more. When you do something for the first time, you make mistakes. Plenty of smaller mistakes and bigger mistakes. Launching your first SaaS product has a huge learning cost. We did pay a lot of learning fees in 2013. As from 2014 and every single year after, it will be cheaper, faster and somehow more straightforward and natural for us to launch other products or grow our current product suite. The first 100 paying users are more difficult to get than the next 100. SaaS entrepreneurship is definitely something that can be learned and one can become better and better at it.
We have an audience
Next to that, we did build up an audience. Beginning 2013 we had no audience, right now we have several 100 of paying users and we have built up a mailing list in the architects and construction industry for our product http://archisnapper.com/. Building up an audience is really not easy and takes time. It’s a marathon, not a sprint. But once you have an audience, you have a set of people putting trust in you, getting real value out of your product in exchange for their hard earned money. It’s so much more easy to launch and sell a second product, an extra feature or an eBook for the same audience than building up another audience from scratch. You are not a stranger to your existing audience. You have passed the entrance exam. Tap into the same audience! Our audience of architects, construction companies and safety coordinators is worth a lot to us, and we’ll keep on building up a bigger audience via blogging (see our blog with tips and tricks for architects), content marketing, personal interaction, product improvements, interviews, guest blogging and word of mouth.
A “productizing” mindset – or how everything in your service business can become a product
2013 gave us a different mindset. Before you try your first SaaS product launch, thoughts go like:
“Well, we’ll build a simple piece of software for [doctors | architects | developers | freelancers | …] that will [save them stress | boost their revenue | save them time | …], we will sell it at $49 per month, and then we just need to find 1000 paying users to make 50K per month. Let’s get rich and drink piña coladas in Hawaii !!!”
When you already launched a SaaS (successfully or not), you know this process takes years of effort, sweat and tears. There is no such thing as an overnight SaaS success. Prepare yourself for a long marathon (or 10 in a row). And instead of betting everything on that one SaaS, productize your entire service business little by little. Every cent of recurring revenue helps.
While on the long term a pure SaaS business is the ultimate goal, our mindset is on “productizing” our entire service company. There are more easy “products like things” that are somehow scalable and repeatable, be it not as scalable and passive as a pure SaaS. It’s not OR a service business OR a SaaS business. Everything between a “fixed price, one time consulting/development project” and a “SaaS product that is making 50K a month purely on auto pilot while you are traveling the world” deserves attention.
Trainings, eBooks, courses, affiliate links, code snippets, master classes and retainer packages are just a few ways to make money in a semi-product mode. They are maybe not as perfect, scalable, passive and profitable as an established SaaS product, but they are certainly different (better) than the “trade your time for money” business model of a pure service business. And most of them are less risky, more easy and less costly to set up than launching a SaaS. During 2014, we will continue productizing our business with some (or all) of the above revenue streams. Every extra percentage of revenue that is NOT earned via “time for money” is welcome.
In a pure consulting business, all the revenue is coming in via trading your time for money. This can be frustrating and not comfortable, as every month you have to ensure to make enough one time deals, there is no way to grow or scale (without working more hours or growing your staff), and there is no passive income as every dollar earned requires labour. Your business is not predictable, as income streams are rather random. Pure service is a stressful business to run.
An (relatively) easy way to cut the direct link between your earnings and time spent is by productizing your service business little by little. Trainings, eBooks, code snippets, icon sets, affiliate links, WordPress themes and recurring monthly retainer packages are all ways to cover a certain percentage of your monthly costs by (semi-)automated revenue streams. With dedicated focus, time and perseverance on productizing your service business, you can easily get 35% of your revenues from productized services. The experience and lessons learned from productizing your service business (selling 500 copies of your eBook is a good preparation to sell your SaaS product later on), together with the extra time you have bought yourself (you have 40% of passive revenue so you have to accept less consulting work) will make it much more easy to grow towards a pure SaaS product business in the future.
The ultimate goal is to grow towards a pure SaaS product business over several years (you should be prepared for 2 – 4 years of hard work before SaaS pays all the bills), where most or even all of your revenue is automated, passive and scalable revenue.
During 2013 we got our mindset into productization mode. Of course we still depend on and enjoy service and consulting work, and we will keep on doing service work. Especially for clients who are serious, collaborative, have a realistic budget, are looking for high quality consulting/development and share our values (simplicity, pragmatism, quality, solving problems, no-nonsense). But at the same time everything in our business is questioned, turned around and looked at from different angles, with a strong focus on all kind of PRODUCTS.
Up to another year of bootstrapping products!
Great post Pieter! Looking forward to what you come up with in 2014.