Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy, where I interview entrepreneurs about how they built their businesses.
And I noticed something over the years, which is that many people who run consulting companies want to make the transition into selling software. And whenever you hear about a company that did it, it seems like it was like that. You already have the team, so they could code it. You already know how to design, so they could design it. It’s such an easy transition. And then when you try to do it yourself, you realize it’s really hard.
Maybe you think that you’re doing something wrong, but I think, in reality, it actually is harder than most people make it out to be, which is I wanted to have today’s guest on. He actually made the leap and he’s willing to say, “Hey, it wasn’t an overnight success. It didn’t just work. We didn’t just have the resources, and as a result everything happened perfectly right. We had some challenges, but we did it. Man, did he do it.” So I invited him here to talk about that transition.
His name is Kyle Racki. He is the founder of Proposify. Proposify allows companies to make better proposals faster so they could win more business. We’re going to talk about how he made the transition, how he came up with the idea for Proposify, how he got customers. We’re going to talk about his year of hell. We’re going to talk about the cult he says he was involved with and so much more.
And we’re going to do it all thanks to two great sponsors. The first will help you hire great developers or designers or MBAs if you have a consulting company and you need to beef it up with more staff, you get some part-time, full-time, over full-time people from them. It’s called Toptal. The second will help you get more email addresses, more leads so that you can actually grow sales. I’ll tell you an example of how they did it with a specific company later. They’re called ViralSweep and I’ll tell you about both of them later and about my contest with ViralSweep.
But first, I want to get in and say hey, Kyle, good to talk to you.
Kyle: Glad to be here. Thanks, Andrew.
Andrew: What was your consulting company? What did you guys do?
Kyle: We were a pretty generic web design agency started back in 2009, and we built websites and did a little bit of online marketing.
Andrew: And before that, you were doing the stuff on your own, right? You were freelancing. What kind of freelancing did you do?
Kyle: Yeah. I took graphic design in community college and then went out and started working in agencies. And then after a couple years, when I was 24, I went out on my own as a freelancer and did just general web design, put in CMSs, WordPress, the usual thing.
Andrew: You told our producer, “I knew when I had that job that I was an entrepreneur. That just was for me.” What was it about the job or the salary or anything else that made you say, “I’ve got to go into entrepreneurship even though I have a great job”?
Kyle: I don’t think I did have a great job. I liked what I did, but I didn’t like working in the environments that I was. I was young too, so I thought I was smarter than my bosses. So I didn’t trust their leadership. So I just kind of realized I wanted to go and do it myself and get my own clients.
Andrew: Get your own clients. Also you wanted, as I understand it, you said, “Look, I want to be able to control my own salary. I know that there’s a hunger inside me sometimes to go double sales, but I can’t do it here because I’m on a salary.” That’s it.
Kyle: Yeah. Absolutely. I mean, I was terrified of selling, but thankfully I had my friend Kevin, who’s now my business partner of like 10 years, and he’s really good at sales. So he was giving me kind of little tips. But yeah, it was a whole new realm for me, and I wasn’t sure I could do it.
Andrew: I’m surprised to hear you say that, because your background includes a religious organization that knocks on people’s doors and does sales.
Andrew: What was it?
Kyle: Well, the religion is Jehovah’s Witnesses. My parents raised me in that since I was a young lad. And yeah, it’s weekly knocking on doors. and they actually have weekly meetings where they teach you how to, they don’t call it sell, but how to teach and overcome objections and all this like classic sales training they kind of instill in you. So maybe I was afraid of sales because I dreaded the idea of knocking on doors and having people slam them in my face.
Andrew: Yeah. You know what? Even here in San Francisco, which seems like the least religious city I can imagine, the Jehovah’s witnesses are out there on the street right by BART. How does it even pay off for them? When you’re going door to door, do you ever get somebody to open the door? Did you ever get somebody to embrace Jehovah’s witness—what is it, Jehovah’s witness, the organization? Did you ever get someone to join?
Kyle: I didn’t personally. Most people, they don’t that way. I don’t actually — this could be a whole other topic — I don’t think Jehovah’s witnesses knock on doors now because they know it’s effective. It’s the least effective way of converting members. If you see them over a long period of time, they built their whole organization from the door to door work, but lately in the last 10 years, they’ve been reducing the amount of publications they print, going mostly online, pointing people to their website.
So I think they are trying to get into that. You’ll also notice they’re at train stations and subway stations now. So door to door is very ineffective, but I think they do it to keep the members very busy. That’s it.
Andrew: Just to keep them busy?
Kyle: Yeah. Absolutely.
Andrew: So what did you learn about sales from them?
Kyle: Well, I think one of them is rejection handling. Because you are going to be rejected constantly, you have to just be able to not take it personally, not get too upset about it. I think that’s good for any salesperson to know.
Andrew: What else? Is there something else that stuck with you?
Kyle: Yeah. I think the stuff that you would probably learn in sales like trying to find common ground with people, trying to—even just speaking training, being able to enunciate clearly or use examples or illustrations, being able to make comparisons, kind of teaching stuff. All of that stuff is helpful.
Andrew: Any of those stand out in your mind? Any comparisons or examples that you go to whenever you wanted to talk to people? Do you remember any of those?
Kyle: Not offhand, but I was trained from about five to go up and speak in front of the congregation and do talks, and then when I was older, I would do more hour-long sermons and that kind of thing. So you’re always trying to use comparisons and metaphors and all that kind of stuff, which does capture people’s attention and keeps them interested.
Andrew: I get that. Okay. So even with that, you still had a little bit of hesitation about sales, and then you partnered up with Kevin Springer. Was Kevin going to be doing the sales largely for this agency you guys are forming?
Kyle: For the agency, yeah. Originally it was just him giving me tips to go out on my own and do my own thing, and then later on he left the same agency and he wanted—he’s about 20 years older than me. So he had run businesses before in the States and Florida. He wanted to go do his own thing as a consulting business and I thought, “Hey, you’re really good at sales. Why don’t you join me?” The analogy was he goes out and fishes, brings home the fish, and I’ll cook them up. I’ll do the work for the clients and make it great.
Andrew: I see. Okay. And the agency was called Headspace, which now has a whole other meaning, right? Isn’t Headspace the app that now let’s you do meditation?
Kyle: It is. Yeah. That wasn’t out at the time when I came up with that.
Andrew: Okay. So you’re doing it. You’re doing good work and you think to yourself, “I want to get into software.” Why? Why not just stick with consulting? What was it about consulting that made you want to switch?
Kyle: Running a service business is very difficult. You’re trading hours for dollars. It also was my first business and I was inexperienced, and so I made a lot of mistakes in terms of how we sold, how we collected payments and just managing cash flow and be able to keep everything—
Andrew: Give me an example. Let’s get specific about one specific mistake that you made. I find that I learn better when I hear one specific example.
Kyle: Right. I mean, I could probably go through a long list. One of them is just being general and not doubling down on a niche or going after one specific market. Just saying we do awesome websites, it worked for a little while, but then it eventually became really hard to stand out and get clients, especially in a place like Nova Scotia where I live, where there aren’t that many clients. So you need to go outside into bigger cities, and you can’t do that if you don’t have any kind of this niche specialty.
Andrew: Why didn’t you guys specialize then?
Kyle: Well, part of it maybe just didn’t realize it at the time how important that was. Also afraid to kind of go out and choose a specialty. That was difficult.
Andrew: I know the feeling Frankly, even here with Mixergy sometimes I feel like I’m not specializing enough, and it’s hard because whenever I say want to reach just this audience, I also say I don’t want you, even though you’re here in the audience. Okay. So you didn’t specialize, that was an issue. You’re saying something about billing always caused problems for you. What was that?
Kyle: Just even the way that we broke up billing with clients. Sometimes, for example, we would maybe collect a certain amount at the beginning of a project. So a client says, “I want you to do my website and bill 50%,” and that was fine, but then the rest of the project would drag on. The client didn’t get us copied. They didn’t get us approval. We would be waiting until we launched the website to bill. So, all of a sudden, we’ve got all of these projects stuck in limbo. We’re waiting to collect payments. Meanwhile, we still have to pay our salary, our rent, our payroll, that kind of thing. We were in cash flow crunch all the time.
Andrew: I get that. What do you do to solve that? In retrospect, is there anything you could have done?
Kyle: If I was to go do it again — and I certainly hope that I never have to go run an agency again — if I were to do it, I would only do retainer-based work, and I would sell upfront discovery projects as a foot in the door project and then I would only sell monthly retainers at six to twelve-month contracts.
Andrew: What’s a foot in the door project? How does that work?
Kyle: So, for example, like if a client wants you to build their app and it’s going to be this massive project, let’s say it’s a $100,000 project or $500,000, whatever the amount, the time that it takes to close that deal is very long because of all the proposals and the scoping out of it and whatnot. It’s often easier to sell a $5,000 engagement just to get in the door with them, start planning it. Then you can say, “Here’s the plan we gave you. You can go and hire anyone to do that now,” and nine times out of ten they’ll pick you to do it.
Andrew: I see. The first thing you sell is the plan. People will pay for the plan?
Kyle: A lot of agencies give it away at the proposal stage. They’ll go up and do this whole plan for free and then get rejected and say, “We’re not going with your proposal.” The easiest way to do that is just sell it as an actual deliverable.
Andrew: And people will pay for that? They’ll pay for the plan that gets executed by somebody?
Kyle: Yeah, because it needs to be done anyway. They’ll need to pay to have that done even if they start working with you.
Andrew: But I thought you were saying they could get it for free, that they won’t necessarily need to pay for it.
Kyle: Well, some are very sneaky, and they’re able to get all these discoveries form multiple agencies and get them to bid against each other. But even if they choose to go working with somebody, there’s still going to be that upfront discovery a little bit.
Andrew: I see. I guess that’s also good for them because they get to see how you work and get a sense of what it would be like to continue to work with you. That’s one other thing you would have done. What else? Let’s go with one other thing that turns you off to doing consulting work, to the point where now you’re saying, “I hope I never get back into it.”
Kyle: I think a lot of that comes down to just general scope creep and being able to manage projects effectively and get them done is a huge thing. Also sales and business development and really being able to — I guess a lot of that comes back down to specializing and not just relying on word of mouth and referrals and going to meet with people for coffees who have like a $1,000 job that you just can’t take on because you can’t make money off of that.
Andrew: Figuring out the right customer to spend time wooing is a big thing too.
Andrew: One more thing about scope creep and making sure the project doesn’t expand, what would you do to avoid that?
Kyle: A lot of that is having really good project managers and being able to know the difference. This was a mistake I made was I thought of an account manager as being the same role, the same person, but really I think they’re different. A person who’s an account manager manages that client and their expectations and the relationship. A project manager, they’re actually out there for the agency trying to make the agency money and make sure nobody’s doing extra work without getting paid.
Andrew: A project manager would say, “This is outside the scope of what you signed up for. If you want that, it’s going to cost more and it’s going to add more time,” but I need to be the disciplinarian who says, “Know when you’re asking for more stuff.”
Kyle: Exactly. You get a healthy conflict between the account manager and project manager, which we didn’t have.
Andrew: All right. So I get how that would be a really tough business to be in. You then said, “I want to come up with software.” Basecamp was the motivation, the guys who used to run what was called 37signals who now are just running one piece of software, Basecamp. What did you see about them that attracted you to their way of working?
Kyle: I started really paying attention to Basecamp soon after they came out. This was before I started an agency. I always thought there should be a proposal tool for kind of like the Basecamp for proposal management. That was just a very early idea in the early to mid-2000s I had, and I kind of wireframed it in my basement one night. Then I put that on the shelf and I didn’t really look at it anymore.
As we were running the agency, we were building sometimes SaaS products for other people for our clients and we thought, “Wouldn’t it be really cool if we were a SaaS company and we just had one project that’s what we poured all of our energy into?” We got the monthly recurring revenue. That was just a model that attracted us. We were really good at building user experience and building digital products, so we just thought it made sense to build one. Of course, in actuality, building it is a whole other story.
Andrew: What do you mean? Well, actually, I see how you found this idea, but you put it on the backburner a bit. You were looking for something. What are some of the other ideas that you were going through even though you had the winning idea somewhere on the backburner? What were some of the other ones?
Kyle: So the first SaaS tool we built was called Site Tea.
Andrew: Site Tea?
Kyle: Tea like the drink. Yeah. And it was actually before Wix and Squarespace came out, and it was a do-it-yourself website builder. Only it sucked, so it became hard for us to get customers, but that was just one idea.
Andrew: Okay. What was the problem with that? When you say it sucked, what sucked about it? That’s a really tough thing to build, right?
Kyle: Yeah, really tough. Technology wise, it was super MVP, so when we put it out there, it was more or less installing WordPress sites for you and choosing a theme. It wasn’t quite as slick as the big ones now. I also think that we didn’t know enough yet about how to do SaaS effectively that we just gave up very quickly. I’m sure maybe if we doubled down and focused for years on that idea, we might have been able to be a contender, but very early on, we just got a couple customers. They didn’t stay. We didn’t work to get anymore, and then we just gave up on it.
Andrew: I see. I always like the way Brian Clark of Rainmaker approached it. He said, “We need a better way to create websites for marketers, but I’m not going to write the software myself. I’ll take WordPress and customize it. That way as they update WordPress, my software gets updated, and all I have to do is come up with the unique things that my audience needs.” Right?
Kyle: Yeah. That makes a lot of sense.
Andrew: I see the challenge there. All right. Before we get into other things that you did, let’s take a moment to talk about a company that actually works very well with consultants. It’s called Toptal. And I had no idea, by the way, Kyle, that this was the way that many people use Toptal.
They have consulting agencies, kind of like you, but they decide that they don’t want to hire a big team. They just want to be able to call on Toptal whenever they need to work with them. In fact, I just had dinner with the people who are writing books with the Book in a Box organization, and this guy sitting next to me, his name was Andrew. So, because our names were the same, I struck up a conversation.
I said, “What is your book about?” He said, “How to build iPhone apps?” I said, “Okay. What’s the premise?” He said, “Well, you hire developers to do it. You hire outside contractors.” I said, “How do you do that?” He says, “My secret was this company, you’ve probably never heard of them, but they’re called Toptal.” I said, “I know them.” He said, “Yeah, that’s all I did. I would sell the app, then I’d go to Toptal, hire their developers to build it. I made sure the developers did the right job and then passed it on to the client.”
I said, “Why’d you use Toptal when there are so many cheaper agencies?” He said, “The difference between the best and the second best developer is not like twice as good. They’re a hundred times as good.” You get better results, faster product and you can actually charge more for it when it comes from Toptal.” So that’s this thing. Frankly, a big part of his book is going to be about how people should just be charging clients and sending the work to Toptal.
So if you guys are listening to me and you’re running an agency and you need more people but you don’t want to hire more full-time people or you need some people who are really top guns, guys who are the best of the best, go to Toptal. They pride themselves on screening people out and only ending up with the best of the best in their list.
So, when a company like yours wants to hire, they will go to their network, find the perfect person for you based on the work you need, and then they’ll match you up with them once you get a match. If you’re happy, you can start working with the developer often within days — part-time, full-time, project basis, whatever you need. That’s the way Toptal works. It gives you ultimate flexibility, and then they give you the best people to do the job.
Here’s the URL that will give Mixergy listeners 80 hours of Toptal developer credit when they pay for their first 80 hours, and that of course is in addition to the no-risk trial period of up to two weeks. Here’s the secret URL just for us. It’s Toptal.com/Mixergy, top as in top of your head, tal as in talented—Toptal.com/Mixergy.
All right. I see the first idea, that didn’t so much work out. What was the second thing that you tried? What’s another idea you guys tried for creating software?
Kyle: So the company that most people here have probably heard of called Radian6, which is a big social media monitoring app, very enterprise-level, I think one of the top of the world, it was actually started by some founders right where I live in Atlantic Canada over on the eastern side. That had recently sold to Salesforce for over $300 million. So social media monitoring was on everybody’s mind.
So we said, “Why don’t we take that approach and make a version of it for smaller companies, not enterprise super-expensive, very market, call it Social Gopher?” It would go and you would put in keywords and find where these conversations are taking place all over the internet. That’s what we built.
The big mistake we made with this was that we didn’t factor in data costs. So we had got about three customers paying to use it, and then all of sudden we got shut off by Twitter API saying, “You’re using the free API and you’re pulling too much data, so now we’re shutting you off,” and then we had to look at third-party providers who basically you could plug in to their network, which was going to cost thousands and thousands of dollars per month, and we were already bleeding cash as a business anyway.
So we quickly realized that’s not the thing. And the other thing was I’m actually not excited at all about social media monitoring. That’s not something that gets me going. I kind of did it because I felt we should, but wasn’t passionate about it. I think the huge takeaway for people is to do what gets you excited, not just what you think is going to make money.
Andrew: What framework were you using? Even if it wasn’t a clear one, what framework were you using to find these ideas?
Kyle: So we would sometimes come up with ideas as everybody does, you’re having drinks with your cofounder or with an employee, “Oh, there should be an app for that.” Figure out, “This is the way it would look,” do a I call it the napkin sketch. And then you just go away and start building. And what we really should have done once we got to Proposify was to actually do customer development and kind of take the Lean Startup approach and try and validate that an idea is worthwhile before spending all the resources to build it.
Andrew: I see. You were just basically saying, “Here’s what the world needs.” The guys from Basecamp say the best way to come up with an idea as a consultant is to ask, “What do I need?” not, “What does the world need?” But, “What do I need?” The problem that I have with that approach is I’ve seen people use it since they’ve started talking about it and what happens is it leads to a lot of time tracking SaaS apps, you know? Because everyone who’s a consultant needs an easier way to track their time. It always sucks to do it.
So they create software for it, but it’s a nichey product and in the end, the solution isn’t better software, the solution is it sucks to track your time. Yeah, you can make it a little bit less sucky, but it’s always going to suck. So I always wondered would they still stand by that approach at 37signals, now Basecamp, if they looked around at how that was being used today, or did they change since then? What do you think?
Kyle: Ironically, like Basecamp, I think they got a lot of heat when they came out with their Version 2 because they got rid of the time tracking feature, which a lot of people liked, but for whatever reason, they cut that feature. I think that serves a bigger point of what you’re saying is when we looked at Proposify, it was writing proposals sucks and we want to make it look really good, so we used InDesign but InDesign is hard for non-designers to use. The collaboration and all that and then sending big PDF files and waiting for people to accept them and having to follow up, there were all these problems around proposal management.
So we were 100% scratching our own itch. We were taking that Basecamp approach of building something you want that doesn’t exist. But I think where the change happens is that you can do that and then you can launch it and then afterwards you start getting customer feedback and you start realizing you’re 80% on the right track, but what the market really needs is this. But you have to adapt your vision and start building what customers are asking for.
Andrew: And that’s what ended up happening with you. So you tried a bunch of ideas. How did you end up with this one, with what ended up becoming Proposify? How did you reawaken your need to get back into proposal software?
Kyle: So it came about — we were just maniacs coming up with all these SaaS products and trying them out even though we didn’t have the resources or time of money to do them all. We were just doing them because I don’t know. We started the proposal software idea — it wasn’t called Proposify at the time — but we found out that locally there was this startup event happening called DemoCamp, where people would go up and pitch their ideas and you had to actually demo the software. I found out about it like a week before it was actually on, and I applied and got it.
The crappy, half-built prototype that we had that was just like stuck together with duct tape. We had to really push together something that could look like it was in existence, even though it wasn’t. So we did that, and there were literally like developers making changes two minutes before I was to go on stage and present this thing. I did the demo, and I showed how it worked. When I came off stage, I just had a flood of people come over to me, “That looks so cool. I could use that. I write proposals.” So it was really just the reaction that it got from people that we were like, “Okay, I think we’re on to something because when we show it to people, they get excited and that’s a good sign.”
Andrew: All right. So, three months later, you actually came up with a real version one.
Andrew: What was in that version one, and how did you decide what features to include?
Kyle: Again, the MVP was really just what do we want? What would our perfect software look like?
Andrew: Sorry, just to underline it, it started with, “What do we want?” Then you looked around and said, “Look at all these other people, they want it to.” Got it. That’s when you said, “Let’s come back to how we would do it and see if they also want these features too.” So what are some of the features you would want?
Kyle: So we wanted something that kind of looked and felt like InDesign and gave you that level of design customization, but you could do it all through a web browser, and your account manager could log in and start writing stuff. That was really where it started, but the funny thing is we put out the MVP and it was just a whimper. It was like a fart in a windstorm, pardon the analogy. Nobody cared. Customers who were on the waiting list to get it were emailing me going like, “This sucks. This is way harder to use than anything else. I’m just going to stick to my old way of doing it.” That was really deflating. What we launched was really not what the market wanted, and it was going to take a lot longer for us to get the market what they wanted.
Andrew: What should you have done to avoid that? If you could go back in time to that three-month period, what would you have done to get that right?
Kyle: You know, it’s funny. I wouldn’t change a thing.
Kyle: Here’s why. One of the biggest things that kind of annoys me is when people are going or come up to me and say, “I’m a founder of a SaaS company and I really want some advice.” I go, “Okay, did you launch it yet?” “No, it’s been in development for about a year and we’re just waiting to do some things before we launch.” You can’t even begin learning what the market wants until you launch something. I would rather spend three months getting something shit to market and then start learning than try to spend a year really anticipating what the market wants before launching it because you’ll never find out.
Andrew: I see. You’re saying it’s one thing to have conversations with people to try to understand. It’s another thing to put a real product in front of them. I get that. You know what? Sometimes when I write emails to the audience or blog posts or something, I just stare at that page for a very long time trying to figure out what I’m going to say, I write my first paragraph and I write the second. Even if I have a shitty writer put together the first version, it’s so much easier for me to say, “No, this stinks because . . .” and then the stuff pours out of me.
So you’re saying you have three months. You’re showing your potential customers that you’re willing to invest the time and have the ability to create something, and second you’re giving them something to fight against and they’re specifically saying, “That is not what we thought you were going to create.” Then it gives them something to respond to. Is that right?
Kyle: You said it better than I could. You have to put the lump of clay, the slab of clay has to be laid down before you can begin chiseling away and trying to get into something real, and a lot of people are trying to envision exactly how the sculpture is going to look before they’ve laid down the clay. I don’t think it can be done.
Andrew: Tell me about what you created versus what they wanted so that I get a sense of what the difference was.
Kyle: Okay. There are I’d say maybe three big features that we discovered over the course of — it really took us 17 months from when we launched the MVP to what we call being a product market fit meant for us would have been like doubling our revenue and scaling quickly. Three major things that we learned through the course of customer development and watching how people who used it and saw what they asked for, so there are three things.
The biggest hurdle we had was people went, “Okay, this looks okay, but I don’t want to have to take the time to rebuild my existing proposal in it.” We thought a long time about how to solve that problem. We actually did just rebuild it for some customers, but we knew that we couldn’t do that for everybody.
When we launched templates, so when we actually took like our actual proposal template that we were using at Headspace and just came up with a few theme variations and just threw it out there and said, “Here’s a ready to go web design proposal template,” we found a massive surge in people just picking their template and customize it versus trying to rebuild something from the ground up. Templates was the biggest thing that we didn’t even think until much later on in the process.
Andrew: How did you come to that conclusion that templates were so important?
Kyle: It really just came down to customer development and hearing what the customer wanted and the hurdle they had.
Andrew: What was the process for hearing that? You said you got on the phone with people who said, “Your stuff stinks,” and you said, “What were you expecting?”
Andrew: What was the process?
Kyle: The process was really, it was kind of crazy because it was me as one of the founders of Headspace, which we were still trying to keep that running. My other cofounder was trying to sell it to keep money in the bank. I was working with one developer who was dedicated to just this product, Proposify, Jonathan. He’s now our CTO. He and I would brainstorm how to do things. I would design it, he would build it. And then we would put it out there and I would take the support emails or pick up the phone and call customers. It was primarily me doing all of that customer development work, and it was really just talking to people.
Andrew: I’m looking at an early version of your site now as you’re describing it. It actually looks like it has all these features. I’m looking at one from December, 2014. That’s fairly fast. You launched in 2014, right?
Kyle: No, we launched in April, 2013.
Andrew: Ah, maybe the site had a different name. Now it’s Proposify.biz.
Kyle: Yes. At the time, it was actually PitchPerfect. That was before the movie came out. Once the movie came out, people started getting it confused and we were like, “That’s a sucky name anyway.”
Andrew: Got it. Okay. All right. I’ll have to go back and look at that. Meanwhile, you’re still trying to run your business, as you said. What about the whole idea that if you’ve got a consulting company, you have a team of people in their spare time, they could code up the app as you need it and you could take your time building it? That’s not possible, huh?
Kyle: I’m sorry. It cut out there for a little bit. I didn’t hear what you said.
Andrew: You had to have a full-time person work on this, which basically is like running a whole startup. You didn’t get any of the advantages of having a team of developers, designers, etc. right? Why not? Why doesn’t that theory hold up, which is you run a consulting company, you have all the staff, just use their spare time?
Kyle: That’s a great question because in the past when we were building these SaaS products, we thought of it as a project. It was like a developer has five projects on their plate, and they’ve got to work on them all different days. We realized really quickly that if you do that, you will never get your product to market because when a developer suddenly like Friday morning picks up the SaaS product and begins work on it and he or she has had four other days of projects, they have to take time to get reacquainted with the code and start looking at it.
And then suddenly it’s the end of the day and, “Okay, I won’t work on it for another week.” It’s going to take a decade to get to where you need to be. You need a dedicated developer to work on it and that is their thing. That’s all they do, and you don’t have project managers coming at them saying, “We want changes done for this client.” That’s it. That’s the only thing they have to do. They’re fired if they work on anything else.
Andrew: I remember asking Mike McDerment in the early days of FreshBooks, “What’s the point of having invoicing software? You can just go into Microsoft Word. Even that old piece of software has an invoice template. Can’t you just go create it and send it out?” He said, “You obviously have not sent out that many invoices.” The more I sent out invoices, the more I realized you could send it that way, but then you need an easy way for people to pay.
Also, you to remember that if they don’t pay, you need to send reminders. If they do pay, you stop the reminders. Already you’ve gotten a little bit too complicated. It’s hard to charge people who you’ve just been working in such a friendly basis. So there’s like the head issues that go along with that, right? I want to ask you the same question. I’m setting that up so you know I’m not being dismissing of the need. But what is the challenge with proposal software? Can’t you just go in and type it up and send it out?
Kyle: That is what a lot of people do traditionally. You go into Word. You write your proposal and email it or you make a PDF and you email it. There are a few problems that we identified. One of them is if you read a lot of proposals, just like with invoices, how do you see a snapshot of all the invoices, when they’re due, how much they’re for, what are waiting to be collected? Just managing the actual bulk of it all is really difficult, and that’s hard to do with Word or even with Google Docs, because you can use folders and it just gets complicated really fast.
The other thing is the delivery method of the client. So a client gets this 10Mb or whatever PDF in their inbox and they open it. You have no idea if they opened that attachment or where they looked in it. Then it comes down to it’s time to sign this, what am I going to do? They have to print it out, sign it, fax it to you, take a picture with their phone. There’s so much there that with our system or with any proposal software, you can send a link to the client, they view it in the browser, and then they can sign it digitally on their phone or in the browser. It’s just taking out all the time-consuming stuff that usually sucks with proposals and shortening it and making it easier.
Andrew: Were your first clients web designers like you guys?
Kyle: Mostly, yeah, that was the audience. And I want to make this point that we learned from the mistakes at the web design agency of not specializing, where when it came time to what we were doing, even though a lot of people write proposals and need things signed, we learned that you need to carve down a niche and do what you know. We knew web design and digital marketing agencies really well, so all the content that we could create, all the marketing was strictly aimed at agencies. We even had investors and other people saying, “Why are you being so specific? This can be used by anybody.” We were like, “No, we need to own a market first and then later on start looking at broadening out.”
Andrew: Okay. Let me take a moment to tell people about a contest that I’m running. You guys can see it at Mixergy.com/win, and I know it’s kind of weird for you, Kyle, to hear I’m doing a contest here and for the audience to hear it. Partially I’m doing it with the prize of the standup desk that I really love. I’ve been on a standup desk and I have a stool to sit down when I want to, but the ability to stand up while I’m in conversation really helps. It’s hard to sit all day. I’ve been loving these earbuds, the Air Buds, actually, from Apple. It makes it so much easier to have conversations, especially while standing up to listen to podcasts, etc. I’m including that.
So the question is, “Why am I even doing a freaking contest?” And the answer is well, one of the answers is a company called Vello—I don’t know what this company is freaking called, how to pronounce it. But here’s what I do know about it. They ran one of these viral contests where they ended up getting 2,397 emails collected and I realized, “Wait, that’s actually a significant number of emails for a company that makes electric bicycles.” I said, “Interesting. It’s always helpful to have more people on an email list.” They also got a whole bunch of shares, like 476 shares on Facebook, 360 tweets, the works. That’s a little less relevant.
The main number that really got me excited was $39,912. That’s how much money they made from this contest, meaning they ran a contest where they gave away an electric bike, which is what they sell and a couple of other things that go along with it, like a chain to keep you from stealing it. They ended up collecting a good number of email addressees, 2,300 email addresses. Then when they went back to that email list and said, “Hey, you entered to win this bike. One of you won, but the rest of you didn’t. Would you like to buy the bike since you didn’t win it and you’re excited enough to enter?” They sold $39,912 worth of it.
So we’re having a contest where we’re offering this desk and a bunch of other things including Mixergy Premium. If you want to win it, you go over to Mixergy.com/win. And this whole contest is put together by the same piece of software, the same company that put together that electric bike contest. It’s called ViralSweep. You’ll see information about it if you go to Mixergy.com/win.
And what I like about them is they don’t just leave you with the site and hope you’re going to get it right. They know the world has way too many contests. If you’re going to have a contest that delivers real leads in email addresses, real sales, meaning people are actually going to buy from you, real shares and the rest, you need a platform and a group of people who are going to help make it work right. That’s what ViralSweep is about, not just software. You can buy a bunch of different software for running contests, but the works, including things like here.
This was what stopped me from running a contest in the past. I don’t know what the terms of service should be. Am I going to go hire a freaking lawyer to do it? Every time I go to someone who runs a contest, they say, “I just copied it from somewhere.” So am I going to copy some idiot’s contest who copied it from someone else who maybe is going to get me in trouble?” I don’t think so.
I want all those little details taken care of, and that’s what ViralSweep will do. They take care of all the little details so that overall you have a package a contest that just works right. So do what I’m doing. Go check it out. I’m with ViralSweep. I urge you guys to check them out. They’re a good sponsor. They just came on recently. We have our contest up with them. See my contest first so you get a sense of how they work and then check out viral sweep if you want to do it for yourself.
So the URL, again, is Mixergy.com/win, win as in the three letters. Go win something. Win this desk, win the ear pods, the Air Pods, I keep calling them ear pods. They’re Air Pods. I wish Apple would just get a little more creative with their names, right? So get these Air Pods, which are fantastic, get the standup desk and get Mixergy Premium, where you’ll learn from proven entrepreneurs and you’ll get content that’s not available here as part of the regular podcast feed. Mixergy.com/win and I’m really proud to say that it’s created by ViralSweep, this great platform and team of people who help make contests work—Mixergy.com/win.
I always like to end the ad with the actual like call to action — Mixergy.com/win. But sometimes I can’t stop yapping.
Kyle: You’re a pro.
Andrew: Thank you. You know what? I have to say, my early interviews, I would read the ads live and I would freaking suck. Then I would call myself out on it, and people would say, “Andrew, you shouldn’t beat yourself up.” I’m not beating myself up. I’m calling it out. If I had the guts to say to a guest, “Hey, you’re not giving me a good enough answer,” then I should have the same guts to say, “Hey, I suck right now, but guess what, guys? I’m going to suck in public and you’re going to watch me keep improving and improving.” We’ve actually more than doubled our ad prices. I think it’s like 10x our ad prices as I’ve gotten better and better at this.
Andrew: All right. I love that. I don’t know about you, Kyle, I love doing something and then coming back the next day and the next day and the next day and keep working at getting better at it. Do you feel like that too?
Kyle: Absolutely. Yeah. I think that’s the only way to succeed, really. I think it stops people from trying things because they know, “I’m not good right now.” But it’s like when you learn a musical instrument. You have to be cool with the fact that you’re going to suck for years before you start getting good.
Andrew: Yeah. The times in my life where I wasn’t ever getting good or making progress is when I didn’t feel comfortable sucking. I didn’t feel comfortable being a bad runner who ran out of breath. I remember running in New York, my breath would ne cold and I would feel like, “That sucks. I’m not enjoying it.” So I didn’t get to experience it. I didn’t feel with dating, like, “I don’t want to be a bad kisser.” I don’t know why I got that in my head, that if I’m a bad kisser, it means that no one should ever be with me. So I was afraid to suck at little things like that.
Kyle: Practice on your hand.
Kyle: Practice on your hand. The hand doesn’t judge.
Andrew: If I believed that, I would have done it. Thankfully, got out of my head about that and I got much better. It turns out a lot of people are bad kissers, and it works out fine.
Kyle: Too much tongue and saliva.
Andrew: Yeah, or not enough engagement in the kiss. It takes a little while for us to catch each other’s rhythm and frankly, part of being in a relationship is liking the person so much that when your kissing styles are a little bit off, you’re okay with it and having the comfort with the person to signal to them either with your body language or with words, “This kissing style is not for me. I need you to do this other thing.”
Kyle: It’s true, very true.
Kyle: I said very true. I didn’t think we were going to go there, but awesome.
Andrew: When you were a Jehovah’s witness, were you allowed to date as much? Were there any restrictions there?
Kyle: Actually, you could sort of date, but it’s always with the goal of getting married very quickly. You’re not supposed to date to date. So I was married at 20 years old.
Andrew: 20 years old? Did you feel ready to be married?
Kyle: When you’re in that religion, you’re in sort of a bubble, so all your friends are getting married at 20, so it doesn’t seem that odd to you. Then later on after everybody’s divorced, then they’re like, “Oh yeah, that was really stupid. We all got married at 20. Of course it’s not going to work.”
Andrew: And the relationship got really tough just as the business was starting to get tough.
Andrew: When was this? What was going on in the business and what was going on in the relationship?
Kyle: So the year was 2012, and I mean, the marriage was quite tumultuous for a long time. In fact, the divorce still hasn’t gone through. As of this recording, it’s like just at the tail end.
Andrew: Like five years since then.
Andrew: When you say it was tumultuous, what do you mean? What was happening?
Kyle: I don’t want to slam my ex publicly.
Andrew: Slam yourself then.
Kyle: Well, it was all her fault. No. I will say that everything regarding the personal life in 2012 was very difficult. My second son was born, and my wife and I at the time broke up very soon afterwards. It’s hard enough to have a baby.
Kyle: Also, my son was born a month after my father died. He was diagnosed with liver disease about a year before that and then just quickly deteriorated. This was also while the business was running out of cash, and we were very stressed financially. And to top it all off, I think my dad dying sort of was a catalyst for me looking at material that was considered apostate by Jehovah’s Witnesses. You’re not supposed to read any literature or any websites by ex-members, and I did that and then I quickly realized and woke up that I was in a cult my entire life and everything I believed—
Andrew: What was it you looked at that made you think, “This feels cult-like to me. I’ve got to get out?”
Kyle: Well, there are different websites. The most prominent of which, if people are interested in this, they can go to JWFacts.com and also JWSurvey.org, and both of those really spell out all the beliefs of Jehovah’s Witnesses.
Andrew: I’ll be honest with you. I don’t know anything about Jehovah’s Witnesses except they seem like nice people who are standing on the street who are not getting any results but still are committed, which I kind of admire. Other than that, I don’t know jack. So I keep looking it up on Wikipedia remembering it, and then I forget what they’re about. If you could just sum it up, what are they about and then what was it that the JWFacts told you that made you think, “This is not for me.”
Kyle: Sure. So I’m going to try to put this in a very quick mouthful. But first of all, JWs are generally nice people, the people within the religion I think are just misled. The organization came about, it really started in the 1800s, and it didn’t kind of become Jehovah’s Witnesses per se until around 1930, by a guy named Rutherford and he was sort of the one that transformed it into what it is today.
It’s very kind of an apocalyptic group. The reason they’re knocking on your door is to convince everybody that they need to become a Jehovah’s Witness in order to survive Armageddon, which is going to happen any minute now. They actually proclaimed that the end was going to come on several dates in the past and were wrong about it. Then if you actually talk to them now, nobody really remembers that, and the organization and the leaders try to claim that they never set a particular date even though you can actually go and look it up and find where they said it.
Andrew: I see.
Kyle: So it’s an apocalyptic group, for sure. It was really those failed prophecies that was sort of what woke me up to actually look in their past literature and see what they actually wrote was a massive wakeup call, because they’re always trying to whitewash history and pretend it didn’t happen.
Andrew: What about — I’m just quickly breezing through Wikipedia’s entry — there was an issue with child sex abuse? Any of that?
Kyle: Yeah. I didn’t know — most of the members don’t know about it because they’re shielded, again, from the leaders in the group, but there have been thousands of cases, very similar to the Catholic church, where children were abused by members and then when they brought it to the leaders in the church, they tried to cover it over. They disfellowshipped people who went to the police. So now there have been multiple cases, the most prominent of which is Candace Conti, if you look her up, that was a few years ago, where she actually won a judgment against the organization for their role in covering over the abuse.
Andrew: I see. Candace Conti vs. Watchtower Bible and Track Society of New York Incorporated. I see it. So that meant that you were — you lost your dad, your marriage was falling apart, you at the same time were finding that this faith that you’re born with, that you went to evangelize for was actually not what you thought it was, so you’re losing that.
I wonder how you can work during that because I know there was a period of my life where all that mattered to me was making money and if something like this came up, it would be a no-brainer for me. I worked through it all because who cares about everyone else or anything else? The only way to succeed is to stay focused on this. Today, I’m a little bit more open to the fact that well, I’ve got kids, so I can’t say, “Screw it to everything except for work,” because I should take care of my kids and I love spending time with them. So that becomes a bit of an issue and then I care more about the people in my life.
So it becomes more of a question, “How much time do I dedicate to my work?” versus “How about I let go of work for now, focus on what’s important, family, faith, etc. and maybe get a job?” How did you decide? What was your framework for deciding what to do?
Kyle: I think work has always been a welcome distraction for me. I always loved working, especially when I was working on my own business. It was easy for me to stay up until 4:00 in the morning working and just as the saying goes, hustling and all that stuff. It was very distracting when I was going through the whole leaving the JWs, because of the shunning that was involved, where none of the existing members are allowed to talk to you, even if they see you on the street.
Kyle: Family, friends, anybody, you’re literally cut off. It’s like as if you don’t exist.
Andrew: Just because you lose faith?
Kyle: Yeah. That’s a teaching. That’s actually instructed. They’re not allowed to talk to you anymore. So I haven’t spoken to my sister in five years, for example. Yeah. That definitely is distracting on top of the fact that you’re sort of . . . I had to reevaluate everything about what I believed. I was instilled with this belief that I was going to live forever on Earth, and the end, Armageddon was going to come at any moment.
When suddenly that’s shaken up and you realize you’re in a cult, it just messes with your head, and it was definitely a year of going to therapy and going on community websites of other ex-members and just trying to process it all was time-consuming. So it was really distracting, like I’m trying to work and build this business and keep it running, but also discover like who I even am. It was tough.
Andrew: So you’re still working through that, or at that point in your life you’re really just letting it go?
Kyle: At this point, it’s been five years—
Andrew: I mean at the time. Were you still working on your software, on your ideas, on your business, on your client’s work?
Kyle: Absolutely. Yeah. It was working all the time and any minute that wasn’t’ spent in work, it was like going on the ex-JW forums and reading posts and posts.
Andrew: I see. Work did suffer.
Kyle: Absolutely. It was also the worst time for the business, and I’m sure some of that had to do with my own distractions.
Andrew: Okay. And your partner, did he give you a hard time about that?
Kyle: No. We were both in the same boat. We both made mistakes. I think we were both working on what we should have been.
Andrew: All right. So you finally then get clear on what you’re doing. You find the right software. Personally, things aren’t set, but they start to get a little clearer so that you can focus more on business. You end up with this grant from the government of Nova Scotia, right? Was that for Proposify, or was that for your consulting business, Headspace?
Kyle: No. That was a grant to hire a developer to actually work on Proposify.
Andrew: Oh, really? Why would they give you money to work on software?
Kyle: Well, in Canada, as most people know, you pay a lot more tax. A lot of that goes into the government. So there are programs that you can take advantage of. There’s more government money. One thing they try to do, especially in Atlantic Canada where we’re the smaller provinces. We don’t make up a lot of their GDP. So they’re constantly trying to pump money into the economy to get businesses going and stimulate small business growth. So they let people from ACOA, which is what they were called, Atlantic Canada Opportunities Agency, they liked what we were doing and our approach and they decided to give us funding.
Andrew: How’d you find out about them? I’ve interviewed several people who got funding from nonprofits, from government agencies. I would never even think to look. Those people are not on AngelList. They’re not blogging to try to get your attention. How did you find out about it?
Kyle: In the business community in Halifax, Nova Scotia, they’re just really well known. I think a lot of people want ACOA funding, and they can’t get it because maybe they’re a consulting business or they’re not the type of business they invest in. Anywhere you go in the business community here, people know about ACOA.
Andrew: All right. You got some money to help develop the software. You decide you’re going to sell your agency so you can pay off some debt and again, focus on your software because you couldn’t do both at the same time and have each benefit from the other. How did you sell your agency?
Kyle: It started with Kevin just kind of going and having conversations with people and trying to see who’s in the market to buy. We had a few conversations. We found a few guys who said they were going to buy the business. It was like 10 months of hell between just getting beaten down in price, going through lawyers. The whole process was a nightmare trying keep the business afloat, to not lay off any staff even though we really couldn’t afford them and try to raise money for the startup. So it was just a very long, arduous process of trying to get the business sold.
Andrew: And then in 2014, you joined Volta Pitch Competition. You showed off what you were working on and how far you’d come with it, and you actually got an investor to get excited about it.
Kyle: Yeah. I just on a whim signed up for this pitch competition to show what we’d been doing the last 10 months, and it was really just an excuse to get out of the house because I had broken my foot that year. I was just miserable. I went and did the pitch, and I won this pitch competition between like three people, which just gave me the award or whatever.
But it was really cool because there was a guy from Innovacorp, which is an early stage VC, but it’s also provincially funded through the government in Canada. They had looked at us a year ago and didn’t think we were quite ready, but then somebody from there said, “It looks like you guys are really just doing it. You’re getting customers. You’re growing. Now we can definitely look at getting you some funding.” That was what happened. We pitched the board and we got $250,000, sounds kind of funny because it’s such a small amount usually by most startup standards, but when we were just dying, $250,000 went a long way. We made it go a long way.
Andrew: And it shows that they’re supportive and someone with money believes in you enough to put their money in the business. But still you were still not finding product market fit. You were still churning through customers. Sean Ellis was on here. He’s a longtime friend of Mixergy. He has a survey that he likes to show people. I forget what that survey is. It’s something like—
Kyle: Product Market Fit Survey.
Andrew: Yeah. I forget the question. It’s something like, “How pissed would you be if this service went away?”
Kyle: How would you feel if you could no longer use this product, very disappointed, somewhat disappointed?
Andrew: And you said, “I’m going to put that up?” You started asking people that question and what happened?
Kyle: Yeah. So it was late 2014. We saw a spike of — we went from just under $1,000 in MRR to suddenly doubled it in one month and then doubled it again the next month. So we saw this massive spike in customers and MRR growth. I was afraid to put out the survey because I didn’t want to be proven that like people don’t care about this product. I was shell-shocked still. I decided to put it out in something like December. When I put it out there, Sean Ellis says that the baseline of — you need to have like at least 40% of your customers say, “I would be very disappointed if I could no longer use the product.” And when I put the survey out there, 60% of people said they would be disappointed if they could no longer use it, and one person threatened to fly to Nova Scotia and kick our asses if we took it offline.
Andrew: And the way you got from where you were before, which is a lot of churn, hardly any customers to more customers, enough to sustain a business and that kind of passion was calling up your customers, understanding what they liked about the software, more importantly what they hated about it, starting to focus on software so that you can improve it and adding the features they were looking for like templates, like signatures, signatures and pre-designs. How did that help the business, allowing people to sign?
Kyle: I mean that was huge too. People wanted it and sort of more competitors were offering it as well. Also being able to see metrics, like where people looked in the proposal and where they opened it and how long they looked. Those things all together, there’s never one thing. It’s always multiple things. Once you get it where it’s easy to use and it’s stable and it works and it’s solving the problem for people, it’s pretty incredible how fast it spikes.
Andrew: You had an investor send you a bottle of champagne and told you, “Don’t open it.” Why’d he send you the bottle of champagne?
Kyle: He sent a $1 million ARR bottle of champagne on it. Once we hit $1 million ARR, we were able to open it. We didn’t hit that until just last year, March, 2016.
Andrew: A $1 million annual recurring revenue, meaning people are paying upfront for a year. Did you have $1 million in recurring revenue?
Kyle: People are paying a mix between monthly and annual, but if you total it all, if somebody pays you $100 a month, then that’s $1,200.
Andrew: I see. The recurring run rate is $1 million, which is phenomenal. Do you remember the day when you drank it?
Kyle: Yeah. We have a little video of us opening up the bottle. Down to the minute—
Andrew: You’re all watching the dashboard internally.
Kyle: The whole team was sitting there watching the dashboard to hit it. We got like $999,999, like $1 away from it and then somebody cancelled and it went down. But once it hit, everybody, we took a little video of us opening the champagne and cheering.
Andrew: We just went through all this in 55, 57 minutes. How long did it take to go from the idea that you finally were ready to launch, not backburnering, to the $1 million in annual recurring revenue?
Kyle: Ten years, nine years, maybe.
Andrew: Well, you launched in 2013, though, right?
Kyle: Sorry. When you said the idea, the idea really was like 2007 when I had first wireframed it.
Andrew: 2007. What about when you first said, “We’re going to build the first version for the DemoCamp?”
Kyle: That was in 2012.
Kyle: It still wasn’t built. It was just a prototype and in 2013, we actually launched an MVP and then another 17 months, so late 2014 hitting product market fit.
Andrew: 17 months to product market fit, meaning people actually enjoyed the product 17 months after you launch it. And then from the day you launch the actual product to the $1 million in annual recurring revenue, how long?
Kyle: About three years?
Andrew: Three years. Wow. And I’ve got all this — I love your stats. You sent us so many stats. You sent us screenshots of how much revenue you’re making per membership level. You sent us traffic, which I don’t know what you’re doing. Your traffic is jumping up. Let’s just get to the bottom line as a way of ending it. You didn’t just hit $1 million of annual recurring revenue and flatline. You’ve grown since then. Where are you today or a few months after that $1 million mark.
Kyle: As of this recording, we are coming up on $3 million in annual recurring revenue.
Andrew: $3 million?
Kyle: Yeah. So we’ve actually grown almost by $2 million in the year since we hit the $1 million.
Andrew: And overall revenue for 2016, what was that?
Kyle: That was, I believe, $1.5 million.
Andrew: Okay. And how are you getting all these customers? I should end it on the number, which is an upbeat way to send people off, but what are you doing to get customers?
Kyle: Organic search has historically been the biggest way we get customers, people searching for proposal software, proposal templates specific, proposal templates, blog articles around topics like how to not kill your cash flow in your agency, how to write an executive summary, very special niche, long tail keywords and just overall brand building. Again, it goes back to building a product people love and want and then getting your customers to then become your advocates and tell people about it and write reviews and ratings.
Andrew: Reviews and ratings where?
Kyle: Places like Capterra, GetApp, there are a few other ones.
Andrew: GetApp. Okay. All right. Congratulations on all the success. The website is Proposify.biz for anyone who wants to check it out. And the blog, where’s the blog, since you guys write really good stuff about collecting and charging?
Kyle: It’s Proposify.biz/blog and then we’ve got articles and a podcast and YouTube videos and whatnot.
Andrew: Easy enough. Cool. If you guys are out there running a consulting company or any kind of company where you need any kind of developers or designers, Toptal prides itself on getting the best of the best. Go to Toptal.com/Mixergy.
And if you want to see my experiment to grow my audience, to get my subscriber count up and to sell, I want you to check out my contest, which is at Mixergy.com/win and maybe you’ll win a standup desk like the one I’m at, these Air Pods that I freaking love and a collection of things which also—it’s basically the Mixergy office and Mixergy Premium, which will help you grow your business. Go check it out at Mixergy.com/win because I want you to win. That is created for us by our sponsor, ViralSweep, which I’m really grateful to for setting this whole thing up. That’s what they do. They can do it for you guys too.
Thank you so much for listening, everyone. Thanks, Kyle. Bye, everyone.
Kyle: Thanks for having me.