Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart.
You know, the goal here at Mixergy is for to interview the most successful entrepreneurs that I can and bring their stories to you so you can learn from them build a great company yourself and hopefully, not just hopefully but based on my experience, you will come back here and do an interview and allow me to help you share your story with other entrepreneurs, basically completing he circle of Mixergy. I want to help you with these interviews and then I want you to come back here and do an interview and help my audience of entrepreneurs.
So, joining me today is an entrepreneur who is solving a giant problem for businesses and as a result, he’s built a successful company himself. His name is Ian Crosby. He is the founder of Bench. They take all the bookkeeping off your hands and give you clean financials in return. I invited him here to talk about how he came up with his idea, how he found his customers, how he built up his business and talk about where his revenues and where his business is right now.
I can do that thanks to my two sponsors, HostGator–if you need a hosting company for your website or if you need a new website, later on I’ll tell you why you’ve got to go to HostGator.com. Any my second sponsor is Toptal. If you need a developer, you need to go to Toptal.com. And later on I’ll tell you why they’re such a good company to work with.
But first, Ian, welcome.
Andrew: So, Ian, you actually wanted to work so badly when you were a kid for a videogame company that you did what?
Ian: Yeah. I definitely thought my future career was in videogames. I was so passionate about videogames. I mean, I’m still passionate about videogames. Don’t get me wrong. I probably play more than any adult rightfully should. But you know, I basically got it in my head this was going to be my future. I started pitching every videogame company around town, knocking on doors saying, “I’m a business student. I can totally solve all these problems for you. You should totally hire me.”
And one of them sort of just liked my gumption, I guess you would call it, even though I really had no salable skills at that point, and said, “Bookkeeping is a problem for us. Do you want to come solve that?” I said, “I’m your man. I can solve this bookkeeping. You have no idea. I’m going to do such a great job on this bookkeeping. That’s my way into the videogame industry and then we’ll go from there. I’m totally going to be producing videogames down the road.” That’s basically how it all started.
Andrew: Did you actually end up doing their books?
Andrew: Did you have experience being a bookkeeper?
Ian: I was like the treasurer at a club at my university. That was about the most I had. I did it all in Excel there. So, it was quite a leap.
Andrew: So, for them did you do everything in Excel?
Ian: No. I basically had to learn how to use professional accounting software and actually do accounting properly, not the sort of back-handed way of, “It kind of adds up this way.”
Andrew: How did you learn to do all that?
Ian: Got some mentors, asked people, read a lot of stuff online. It was like partially self-taught. I actually didn’t have an accounting background other than my few basic accounting courses in college. I was a finance major. That was the opportunity. I was going to go be a bookkeeper. That was my way in. The fact that I didn’t know bookkeeping wasn’t going to stop me from getting in there.
Andrew: All right. I like the way you think. What was the software that they used?
Ian: This was back in like the mid-2000s in Canada. So, the software of choice then was this thing called Simply Accounting.
Andrew: Okay. That was pretty major. From what I remember, it was more involved than QuickBooks, right?
Ian: Yeah, exactly.
Andrew: I think we might have used it at some point. But it wasn’t an easy piece of software to use, was it?
Ian: No. Well, it depends. If you’re naturally inclined maybe and you spend all of your days and all of your time learning every in and out of that software, yes. But if you’re not a specialist and that’s not your job, it is definitely a pain.
Andrew: All right. So, then after school you went on to work for Bain, the consulting company.
Ian: Yeah. That’s correct.
Andrew: What did you think of working for them?
Ian: I mean I learned a lot of great skills there.
Ian: So, there are very few opportunities as a 22-year old to get dropped in sort of a massive company that has like $5 billion in sales and just have access to all their data and figure out what their problems are and just have free rein to be like, “You know what? There’s a huge problem here.”
Andrew: And you’re talking about not Bain–you’re talking about the clients that you had when you worked at Bain?
Ian: Yes, exactly.
Andrew: They would drop you into a company and say, “This company has a giant problem. You have to fix it and we’re going let you see whatever you need and learn as much as you want in order to solve this problem.”
Ian: I would always be the junior person on the team. So, I was a data guy. There would be a partner who sold the big ideas on like, “Here’s what your strategy’s got to be.” Then it came down to me and it was like here’s what we sold the client, now let’s actually deliver the thing.
So we’re going to have to figure out here’s all the databases, here’s all the data, go figure it out. That was, actually a lot of the time, we had huge success in doing. That became one of my key skill sets, pulling together masses of data and figuring out how to make a business successful based on that.
Andrew: So, why didn’t you stick with Bain?
Ian: Well, my dream was always to run my own company. As much as I learned a lot there and got cool skills and I solved cool problems, after two years it was sort of like well, I’m not actually learning how to run my own business at this point. I’m learning more incrementally about how to solve bigger and better problems or maybe like move up the chain in the consulting firm. That’s not what I really wanted to do long-term. I actually wanted to build something new.
Andrew: So, where did you come up with the idea for Bench?
Ian: It was actually there that all the dots came together, but there wasn’t any one indicator. There were all these experiences that I accumulated over my life, like bookkeeping. I knew a little bit of programming and I taught myself some programming and actually enrolled after management consulting, I actually enrolled in computer science and got more formal education in programming.
All of these things together combined with actually going out and talking to businesses when I wanted to actually start a business and started going, “I guess I better figure out what the problems are and figure out what my solution is going to be. It’s probably going to be something to do with bookkeeping.”
I figured I could make better software than Simply Accounting because I basically programmed a bunch of my own custom stuff for that videogame company. So, if a 19-year old with no career experience can do that from scratch, let’s figure out what I can do if I make a business out of it.
Andrew: Wait, Ian, you programmed when you did that bookkeeping job with Simply Accounting or do you just mean that you used their software to make your life a little bit easier?
Ian: I programmed a bunch of custom add-on tools. It was sort of like, “I don’t want to spend 80 hours a week doing this bookkeeping. I want to spend 20 hours a week and I want to spend 20 hours testing the videogames.” So, how can I basically automate myself out of the job here?
Andrew: How did you figure out how to automate, how to create this software to automate?
Ian: Basically just learned how to program, read everything I could about Visual Basic, opened it up, had my programs not even run for like the first two weeks. I couldn’t even get the freaking thing to run a basic program, Hello World. I didn’t really have any mentors. Then I started accumulating people, like, “Hey, there are a lot of programmers inside this videogame company. I can get them to help me and teach me how,” and just learn from there. It was very self-taught.
Andrew: So, this is the period where you picked up “Visual Basic for Dummies.”
Ian: Yes. Exactly.
Andrew: You literally picked that up?
Ian: I literally bought “Visual Basic for Dummies.” It was not that helpful. I diligently got halfway through the book and I was like, “I still don’t know how to get a basic program working. What the heck is going on here?” There was a bit of a gap between theory and reality of what you need to do.
Andrew: What’s the first plugin you created?
Ian: I created something that basically would create project reports. So, we were working on all these videogames, but we just had one revenue line item. Here’s the money we get from working on all these videogames and here’s the total cost from working on all the videogames. This was a contractor that made videogames for publishers like EA and Activision. We have no idea which products are profitable, which ones aren’t, what’s our margin on each one, no idea. On average we have this margin.
After we figured out and diligently went through, we had to do things like what engineer was working on what project at what time. We have 100 engineers, so we know the total cost, but how much of them went into this game and how much went into that game? We have no idea. It turned out that some of them were actually losing a lot of money. So, that was like, “Well, I guess that’s good that we figured that out so we’re not losing money anymore.”
Andrew: So, then you said, “I want to start a new business. I have a sense that software for bookkeeping is not really where it should be. It’s not as easy to use as other software is.” You mentioned that you talked to other businesses. What kinds of conversations did you have with them? In fact, before we get to the kinds of conversations, how did you even get them to have a conversation with you?
Ian: I just asked them. First of all, I started with friends that had businesses so I could even wrap my head around what their problems were. That’s how I felt comfortable, “Hey, my dad’s friend runs a business. Hey, Dad, do you mind introducing me to Joe so I can talk about his business.” And he’ll probably, as a favor to my dad, take some time out of his day, no problem.
Just use everything to your advantage, right? A lot of people don’t even recognize how big their networks are, I think, especially at the beginning. “I’m a student. I don’t have a network.” “Well, you’d be surprised who you actually know, like your karate teacher. Maybe he actually knows someone that’s going to be useful to you.”
Andrew: And is willing to talk to you.
Ian: Exactly, the same way I basically knocked on the doors of the videogame companies. I didn’t literally walk up and knock on the doors. I networked my way in there like, “Hey, this is a smart kid. You should talk to him. I don’t know if he knows what he’s talking about, but he sure seems passionate.” Use that. Use every tool that’s at your disposal.
Andrew: All right. You found cofounders, though, right? This was before you started coding?
Ian: Well, I found them before I started coding, but I didn’t know they’d be cofounders.
Andrew: How did you connect with them?
Ian: One cofounder I had actually known since I was four years old and we were inseparable friends for decade. It just turned out that he became a world class designed. He worked for a company called MetaLab, which does–they designed Slack, for example.
My other cofounder was one of my closest friends in college. So, we’d always worked on like harebrained projects together. We always talked about how awesome it would be to run businesses. It wasn’t until I was actually taking the first steps and sharing it with these guys and they’re going, “That’s awesome. How can I contribute? Yeah, let’s do this. This is amazing.”
And because we actually worked on all these projects even as a 16-year old context, we kind of knew how to work together. We had a comfortable working relationship. So, it was just very natural right off the bat.
Andrew: All right. So, let’s go back to the conversations you had. What did you ask these businesses and what did you learn from them?
Ian: The first thing I asked was, “What’s missing in your current bookkeeping? What’s missing in your accounting? What need can I fill? You already have this interesting process. How can I build a piece of software that’s going to fit in here and solve a problem for you?” A lot of the answers I was getting were just basically like, “Well, I don’t know, talk to the accounting guy. We just lost our bookkeeper. That’s just a huge mess.” Well, if they don’t even have a bookkeeper, how am I going to sell them software? Or there’s this huge mess.
Then I realized after having these conversations, actually that is the opportunity. The pain point isn’t, “Where is this network of software system and how are we going to fit into this giant ecosystem?” It was they don’t even care about the ecosystem. They don’t even know what the ecosystem looks like. They don’t use it. They’re like, “I can’t find a bookkeeper to stick around for more than six months. That’s my problem.”
Andrew: And so the big problem wasn’t the software, it was people to do the bookkeeping for them?
Ian: Yeah, exactly. The biggest problem was like, “I need my books to get done. I don’t care how they’re going to get done. I don’t care who does them. They just need to get done. They need to be clean.” That was really the thing that took up a lot of their time, their headspace. The CEO of this 60-person company going, “How’s my accounting going to get done?” It’s like why isn’t there anywhere you could just go in and stick a credit card in and have that problem solved for you. Why does it take one ounce of brainpower to figure that out?
Andrew: If they have 60 people, couldn’t they just hire a bookkeeper to come in and work for them?
Ian: Yeah. Once you’re at 60, it’s actually interesting how many of them churn and how much time they spend looking for bookkeepers even at 60. Hiring a bookkeeper is great, keeping them is a problem. A lot of them are like me, like college students at that time and then they graduate and they want to go on and do bigger and better things. At the smaller end of the scale, at 10 employees, even finding a bookkeeper at all, you don’t have a recruiting department that’s going to go out and hunt them down.
Andrew: So, you knew that it was going to be services before you even thought of software.
Ian: We thought of software first but we knew it was going to be service before we started building.
Andrew: You did? You knew eventually you were going to have to have a team of people, an army of bookkeepers.
Andrew: I see, because your people didn’t want to use software.
Ian: Well, I don’t know if we really understood how much service was going to involve. We knew that we had to solve the whole problem of actually delivering books. I think we had a little bit of a fantasy world where we thought a lot more of it was going to be automated than it ended up being. I think the gap between what people would like AI to be and what it actually is today and what you could actually apply unless you’re actually Google and have an army of 1,000 AI engineers, the gap is pretty wide between, I think, what would really be compelling and what’s available.
Andrew: All right. So, you also started on the software path. The first version you told our producer, it sucked in data from payroll and spit out profitability reports on each project. Is that the first thing that you built that’s similar to what you built for the videogame company?
Ian: That was the thing we built for the videogame company. The first thing we built for customers was something that I actually did all the bookkeeping behind the scenes in Excel. It was just the interface for the financial statement. There was a place where they could upload a few files. It was really quite terrible.
Andrew: Wait, Ian, you’re saying that the first version that you built was an Excel spreadsheet?
Ian: It was Excel behind the scenes. All the product really was, was a place where I would upload the data into this thing and they would get their financial statement. They could just see it. But I had already done all the work and already uploaded it in there. We weren’t doing work inside the app. It was just a presentation layer, basically.
Andrew: I see. So, the app was a presentation layer but the actual work was done in Excel by you and then once you were done with it, you uploaded it to the app. The customer would get it from the app and say, “This is a beautiful app. I don’t know how it did it, but it’s wonderful.”
Ian: The priority was always–and this was after Adam came on board, but it was really like, “How do we make it magical from the customer from the very first experience of getting it?” And how we’re going to get the data in there and all the processing and behind the scenes, they don’t really care. They just really want–what’s the experience for the actual customer? All the ugly sausage factory stuff, we’ll figure that out. They don’t need to basically be bothered with that.
Andrew: I see. This is essentially what Eric Ries would call concierge MVP, right?
Ian: We read definitely “Lean Startup” and took that to heart, absolutely.
Andrew: You were thinking, “This is a concierge MVP product, but eventually everything that’s being done by humans will be done by machines and so far, you’re not at 100 percent and you may never get to be there.
Ian: Yes. Exactly.
Andrew: Okay. Let me take a moment and talk about my sponsor and then we’ll come back and see how you continued with this business and how you actually got your customers, how you figured out what the product was going to be and one of the big challenges that you had. But the sponsor is Toptal. Have you heard of them, by the way, Ian? You’re in the space.
Ian: I haven’t.
Andrew: Yeah. I’m amazed by how many people haven’t heard of them and then they suddenly discover them, hopefully through Mixergy, and they’re amazed. Toptal is a network of top developers. We’re talking about the best of the best developers. I know they are because these guys put each developer in their network through a really rigorous screening process including testing, evaluations, talking to them, making sure they’re the right people to have in their network.
So, if you as a business owner need to hire developers but you don’t have enough time to go through the long drawn out process of getting a recruiter, of doing a bunch of interviews but you just need the right person or people to join your team, you go to Toptal, you tell them what you’re looking for, you tell them what languages you guys are working in, you tell them what you need programmed, you tell them where the business is going, you tell them a little bit about the culture, a lot actually about the way you work.
They go to their network. They find the perfect person or people and they introduce them to you and if you want you can work with them, often within 48 hours and those people get started like they’re part of your team because they are. But you pay Toptal. Toptal pays them and you keep a really good relationship with Toptal, which makes sure that you get the results that you want.
Toptal.com–in fact, forget Toptal.com. If you really want to sign up with Toptal, go to Toptal.com/Mixergy. Toptal.com/Mixergy–if you go there, you’re going to get 80 free Toptal developer hours when you pay for 80. In addition to that, they’re going to give you a no risk trial period for up to two weeks. Write that down, that URL. I don’t know how long it’s going to be available. But if anyone you know needs a developer, you tell them about Toptal and they’re going to thank you for it.
Oh, and one more thing–Toptal has a two-week trial period, which means after two weeks, if you’re not 100 percent satisfied, you won’t pay. You won’t even be billed. But Toptal will, of course, pay the developer. Toptal–they’re funded by Andreessen Horowitz. How amazing is that? Cool.
So then, Ian, you built the first version to just do that. What did it actually–I want to know, what was going to be in the reports? What was that little bit that you knew your customers would want?
Ian: Yeah. It was really just they need an income statement. They need a balance sheet. That’s just something that every business needs.
Andrew: They were going to send you all of their financials to get an income statement and balance sheet?
Ian: So, basically what we need is their bank data. That’s what we started out with. We pull in more stuff now that we’ve actually figured out the process a lot more. This is a process of learning. There’s what we thought we were going to do in the beginning and what ended up now that we have this smooth-running machine, how it actually works now.
But in the beginning it was, “We’re going to need their bank statements and we’re going to need the receipts.” We would basically get them all uploaded into that system. Then I would download it onto my computer and do all the bookkeeping and re-upload like, “Magical, you just upload the stuff and it magically turns it into financial statements.”
But we wanted to feel magical, but even when we were like, “Oh yeah, all we need is a presentation layer.” Even then, it was bad. It was just like–I look at it now I’m like, “Oh man, I’m so embarrassed with what the product looked like back then.”
Andrew: Why? What was embarrassing about that?
Ian: So, we had this feature called the Action Center. It seemed like this great idea at the time. It was like this to-do list for the customer and all these things they had to do. The whole reason the customer was buying from us was because they didn’t have to do work. So, giving them like, “This is the work you have to do,” it was just like, “Dude, what? This isn’t what I signed up for.” Some of them were okay with it and some of them had nice things to say.
But getting rid of that and just getting to how do we get this stuff out of the way from them as fast as possible, which ended up being enter your bank credentials once and we’re going to pull your data and you don’t have to keep going in and uploading stuff all the time, that was a pretty crucial element to actually get people interested in continuing to use us and to actually make it good on that goal of wanting to make it feel magical. It doesn’t feel magical if you’re having to dig through data and upload and figure out what you even need every month.
Andrew: I’m trying to spy on you in real time and I realize I don’t know the name of the company when it started. What was it?
Ian: It was called 10 Sheet.
Andrew: Ten, T-E-N, Sheet?
Ian: 10 Sheet.
Andrew: Oh, how’d you end up with that name?
Ian: Well, basically, I took a whole bunch of combinations of numbers and words and figured out what domain name I could buy for $10.
Andrew: I see. Bench.co is so much better.
Ian: Yeah. We bought that for $3,000 after we had done a full branding exercises and figured out what the features are going to be. At the beginning, all I need is a project name so I can interview people and get off the ground. Step one is not go and buy a $3,000 domain name. Step one is build something people want to buy and then you can figure out how all the finesse around it is going to work later.
Andrew: Now I’ve got all the stuff on my screen. Back in 2011 it said, “Tired of all those bookkeeping?”
Ian: Where’d you find that?
Andrew: “Tired of all those bookkeeping? Not happy with the money you spend on bookkeeping? Let 10 Sheet do your bookkeeping for you. Just send us your receipts, invoices and forms and we’ll take care of it all. We’ll track and pay your bills, collect your money, etc.”
Ian: You just put a stake through my heart, my friend.
Andrew: All for $50 a month. But you didn’t start charging from the beginning. At first what did you do? Didn’t you offer beta for free?
Ian: We told people we wanted to set the expectation we were going to charge but then when people actually got in we were like, “It’s probably not ready for prime time We’re going to charge you once for you to release it into beta, but at the beginning, I think we did this actually–we thought we were really clever with that. We should have actually charged people from the beginning because what we found was when we actually turned on billing, two-thirds of the people left. We had been taking feedback from people that really didn’t value what we were doing.
Andrew: That makes sense and it clicked over to say that yes, they would want to sign up for a $50 a month service, so why charge them nothing if they’re willing to pay something.
Andrew: All right. Then what’s the next version of the site?
Ian: Right after that, pretty soon after we had our first version, we actually got into Techstars, Techstars in New York. In that three-month period, we went through so many versions. We were just working crazy hours that time. Also, really stepping up how much–because we got this investment, once you get into Techstars, you get $120,000.
I could actually pay someone to do the bookkeeping instead of me. Basically what I was doing before that, my day was I would talk to mentors in Techstars from 9:00 to 5:00 and then I would talk to a few potential customers and then I would do bookkeeping for the next five hours and go to bed at midnight and wakeup the next day and do it all over again. It was just sucking so much of my time.
So, I said, “If I had someone to actually do the bookkeeping, that would free up a lot of time that I could actually spend talking to customers and figuring out what we needed to build.” Talking to investors and doing bookkeeping is neither of those things. So, that was basically once I was able to actually spend a lot of time talking to new customers and figuring out what they felt about our solution or talking to our current customers about what they thought of our solution, the iterations started coming really, really fast.
Andrew: What are some of the things you learned from your customers back then?
Ian: It was so many little things. We would throw up an iteration and they’d go like, “What? I don’t get it.” And like, “What do you mean you don’t get it?” Because of course, you’re so deep in it you get what you built and you know what it’s meant to be. But you learn that it’s not intuitive to other people.
Building something that’s intuitive the first time you look at it is really hard and it’s not what you would necessarily envision. I think a lot of people watch Steve Jobs biographies and that to build a product, you’re supposed to be a visionary that knows exactly what it looks like from day one. Well I have no idea what Steve Jobs’ process looks like and neither does anyone else. That’s the problem of thinking, “Oh, that’s how you’re supposed to do it.”
What I found from my process was I did not have that. Whatever that is, whether it’s real or not, I needed to actually talk to people and get their input on what’s intuitive and not intuitive and what they need and what they don’t.
Andrew: I’ve asked people who have gone through Y Combinator what they learned from the Y Combinator process. It feels like a lot of what they learned is stop building, go talk to customers and sell to customers and do it now–launch now, talk to customers now, sell to them now. What did you learn from Techstars?
Ian: Yeah. The Techstars program itself, there wasn’t actually a lot of programming at that time. I think it’s changed since them. We were in the third ever Techstars New York class. So, a lot of it was I was meeting with six or seven mentors a day just getting a flurry of different opinions. So, what I got out of it was meeting people who had scaled a small business acquisition team like a small business sales team, which you know, I’d never done sales in my life, let alone build a sales team. I had no idea. That was just one thing it was like, “Well, I guess we just talk to more people.” I never really thought through what it took.
Andrew: And they knew you would have to have a sales team, not just online ads?
Ian: Well, online ads are great, but when someone gets here, just because of the nature of our product and I think a lot of other products for small business, you actually need it to work for you in a specific way. Somebody needs to actually talk to you and coach you through, “Here’s exactly what I’m going to give you.”
It’s the difference between paying $100 a month for something versus $9 a month. You’re probably willing to earn stuff yourself. $100 a month, we really have to be solving their problem for them. That means that we have to actually demonstrate, “Here’s how it works. Here’s what you’re going to do. Here’s what we’re going to deliver you every month.” And you know, I’m actually going to have to pay people and sit on the phone all day and sit on the phone and explain what we do.
Andrew: You finally got into or you got in front of investors. Was Joel Spolsky–no he wasn’t an investor. He was a mentor.
Andrew: I love Joel Spolsky as a guest here on Mixergy, as someone whose writing has influenced developers and entrepreneurs for years. Were you a big fan of his too?
Ian: I actually didn’t know really a lot about him other than he was an early employee at Microsoft at the time.
Andrew: Right. And then since then he’d gone on to build several companies, including Stack Exchange and Trello. And then he heard what you were doing and you saw him doodle. What did he doodle?
Ian: Oh man, I haven’t talked with Joel Spolsky since, by the way. So, I have no idea what he thinks of Bench now. But at the time he said, “You’re business is doomed. There’s no way this is ever going to work.”
Andrew: He told that to you?
Ian: Oh yeah, totally. And then I explained, “Well, actually, why do you think that?” “Well, you’re not going to be able to solve this. You’re not going to be able to solve that.” It really came down to like, “How are you actually going to be able to automate all these bookkeeping problems?” “Well, actually, here’s how we’re approach this problem and here’s how we’re going to approach this to categorize this transaction.” “No, not going to work. Absolutely not going to work.”
And he started doodling the word “doomed” in his notebook. The more I would talk, he would look down and underline and circle the word “doomed” or go over it a whole bunch of times. So, maybe my pitch really was that bad. That was the third or fourth mentor I had ever met at Techstars. It was the second day or something. It was also crushing like, “Oh man, what are the next three months going to be like? I wonder if this business is doomed.”
Andrew: Was there any part of it that even looking back you agree with, that he had some foresight on?
Ian: He was right that the automation we were thinking of was going to be a lot more challenging that we thought it was going to be.
Andrew: What was the automation?
Ian: We thought there was going to be a lot more things we could do in terms of finding categories for transactions automatically that we’re just getting to now. It’s possible, but takes a team of like 20 engineers working full-time on it, not like, “Oh yeah, we’re going to figure it out by the end of Techstars with two guys while also meeting with mentors all day.”
Andrew: I see. You wanted to be able to easily suck in everyone’s expenses from their bank statements and credit card statements and automatically categorize it for them.
Ian: Knowing what’s a restaurant, knowing what’s software, etc. And then his points were like, “Well, how are you going to categorize this kind of transaction? Well, how are you going to categorize this kind of transaction?” We’re like, “I totally thought that through. We’re going to do it this way.” He’s like, “No. You’re totally making this up.”
Andrew: Ian, so, I remember when I got into QuickBooks most recently. I just hated the whole experience. I used to love QuickBooks and then when software developed, the software world got to a place where software was actually fun to use and easy to use, I sat down with QuickBooks to do Mixergy’s financials. I didn’t have that many expenses. I only had like two advertisers and it was still a headache to use.
So, I looked around for other software and Mint was working pretty freaking well. So, I kind of used Mint for Mixergy. And it wasn’t exactly what I needed it to be so then I found another company and I invested in it because I thought, “This problem needs to be solved.” But what I’m finding now years later is there still isn’t a Mint for business, one that’s fully automated. I’m wondering why. Why can’t it be as easy as it is for business–I mean why can’t it be for businesses as easy as it is for consumers?
Ian: The thing about personal expenses and organizing your personal expenses when you’re using Mint, you’re just organizing it into a way that works for you and that you understand. But when it’s for your business, you need to organize it in a way that the IRS understands. You don’t necessarily know all of the rules around how things are supposed to be done. You’re not exactly going to go to school for two years and figure all that stuff out either.
Andrew: So, give me an example. What’s one thing you accept when you’re in Mint but you can’t when you’re in a business setting?
Ian: One thing that you would accept when you’re in Mint… Well, it’s just different kinds of transactions and expenses. One example is the way payroll is supposed to show up on your financials. You’re supposed to break out the taxes in a very particular way and show them on your financials because when someone is going to file your taxes, they need to report how much do you pay to people, how much was the tax portion, etc.
There are very specific rules around how you’re supposed to do it. So, you could go and learn what the rules are and do it yourself and build a whole process from scratch, but for example, we have a tool that automatically connects to Gusto, breaks out all that stuff and sticks it right in your financials.
Andrew: Yeah. That’s an automated system. Why isn’t more of it automated? Why isn’t all of it automated?
Ian: There’s also like, “Okay, but what automated tool am I supposed to use and how does it work?” Even if 99 percent of the work is gone, you still need to understand 100 percent of the process. You need to know what tool to apply and when. So, even if it actually isn’t going to take you time to enter stuff into the spreadsheet, you need to know–that’s actually what’s going take up the time, learning what the output is supposed to look like and what the process needs to be so you can go spend the tool that takes out 99 percent of the work. But that process isn’t fun.
Andrew: But you’re saying you guys are learning that?
Ian: Yeah. That’s what we’re going to do.
Andrew: I see. You’re saying as a business, anyone who’s tackling this problem needs to know all these different business needs and then we can create software.
Ian: Yeah. The problem is if you own the process, you’re responsible for making sure the output is what it’s supposed to be, which means you have to learn, “We’re supposed to do this with our payroll. We’re supposed to do this with this kind of receipt. This kind of receipt is only 50 percent tax deductible versus 100 percent.” There are all these rules. And they’re kind of totally arbitrary. It’s not something you’re going to go, “I learned from first principles in mathematics.” It’s all these rules you just have to learn.
Andrew: I see.
Ian: The IRS…
Andrew: Frankly, now that you’re talking about it I realize Mint is really simplistic. All it does is it categorizes items in your credit card statement and bank statement.
Andrew: Once it categorizes it, it can do things with it like give you reports, but it doesn’t do much more than that.
Ian: Yeah, exactly. And if it does it wrong it’s not a big deal.
Andrew: Right. And it does get it wrong more than you’d expect.
Ian: It’s only for your personal understanding. And if you get lazy and you don’t keep it up, no problem. Whenever you come back to it, it’s fine.
Andrew: No, it’s not. It’s still out of control. You know what I’ve actually thought about? I’d love to get a bookkeeper those just organize Mint for me or to do my personal books for me and just let me know, “Does it make sense that we are using Zipcar that much or should we just be using Uber, for example? Are we using Uber too much? Should we be using it more and just relax?”
Ian: Someone should really build that someday. Someone should really have that in your five-year plan.
Andrew: For personal? Do you guys have that too, to get into personal stuff?
Ian: Well, I don’t like to speak about the future too much. Who knows what’s going to happen? But we have definitely talked about stuff like that.
Andrew: At some point, you guys have talked about–oh, micro now is $125. It used to be less, wasn’t it?
Ian: Yeah. Definitely. We started out at $50 and then we went to $69 and then we went to $99. It was really about sousing out how much extra service people want, like what’s the right level.
Andrew: All right. I want to come back to you and talk about pricing. That’s on my list to get to. So, you get out of Techstars. Investors are not excited about working with you, right?
Ian: Well, they weren’t at first. In Techstars–I don’t know, man, some people just no how to pitch right away naturally or at least they felt they did. I had no idea. I walked in there and I just kept getting my butt kicked, like, “This is the worst idea. This is never going to work. Here are these five problems. How are you going solve this? How are you going to get customers?” That’s always the number one, like, “Okay, cool product. How are you going to get customers?”
And the learning actually, that wasn’t like a brain teaser that I was supposed to sit there and figure out. The right answer is, “I’ll go find the person who sold something to tons of small businesses and figure out how they did it.” And then I just come back and we’ll tweak it a little bit. But I’m not trying to reinvent how sales is done. I’m trying to reinvent how bookkeeping is done.
So, figuring out collecting the mentors and all these different areas and applying it, the really strong answer to how you’re going to get a bunch of customers, “Well, let me tell you. So Squarespace–I was hanging with the COO of Squarespace the other day and, by the way, they have like a million small business customers. This is how they did it. I think we can do something similar.” “Oh, okay, if I say you’re wrong, then basically I’m calling BS on the COO of Squarespace. I can’t really challenge you that much.”
Andrew: I see. That’s the response. You eventually did have the right responses. You said James Hopson introduced you to your seed investor. You guys got funding. How much did you get?
Ian: $2 million in that seed round. That was three months after Techstars. So, that was a very intense six-month period from no one would touch us with a ten-foot pole to raising $2 million six months later.
Andrew: How close did you get to running out of money?
Ian: Oh man, how many times? Yeah, for that, I had to actually make the last payroll with a personal check. It just sort of like… it just wasn’t enough. But the good thing was the company was small enough that I could dig into my savings and find that $10,000. I knew the check was coming the next week. It was at the time terrifying, but like in retrospect, it was like, “Oh, okay, that’s probably not the worst thing that could have happened.”
Andrew: It is scary when you get to a place where your personal finances can’t cover every single mistake that comes up.
Ian: Yeah. Exactly. Now, hey, if we mismanaged the financials, I could not make payroll with a personal check. So, at this size of a company, you have to have a finance firm running on all cylinders because you need to optimize for survival, first off. You don’t want your business to go out of business because of some silly thing that had nothing to do with your product or how good it was, how good you were at selling and those kinds of things and like, “Oh man, we weren’t looking at our cash level and we went out of business. Oops.” Really painful way to lose your business.
Andrew: How did you get those 50 initial beta customers, 25 of which stayed with you when you started charging and 25 left. How did you get those 50?
Ian: The first 50 it was all knocking on doors and just every time I met with a mentor, I’d go, “So, do you know any small businesses that could use our service?” The most memorable one was I was meeting with the director of The New York Times or the chairman of The New York Times at the time. He goes, “Oh, actually, I was just at my hand therapist clinic the other day. She was just complaining about her bookkeeping. So, maybe I should introduce you.”
That was a memorable client because we actually took the subway down, me and the one bookkeeper I’d hired so that I didn’t have to do the books anymore and showed up at her office and coached her on what we were going to do. She didn’t know anything about bookkeeping and she didn’t want to. So, we were like, “Here’s exactly what we’re going to do for you.” She’s like, “Yeah, my accountant told me to buy QuickBooks.” We open it up and it would barely open because it was on like Windows 95.
You could just tell it was such a pain point. She just wanted to be serving her customers and healing people, basically. Here was this thing that’s like I’m spending two hours, “And here I am talking about my freaking bookkeeping for the millionth time.” We actually solved a problem for her and she’s still a client today. Actually, she retired and handed off the practice to someone else and they’re still a customer. So, it’s just really cool that like three years later it’s like, “Man, we actually really solved that problem for someone.”
Andrew: How’d you get the next batch of customers?
Ian: So, when we were pitching investors, one of them–we hadn’t tested online ads year. They went, “Well, we’re not going to invest in a company if we don’t know how effective online ads are. But man, it’s really dumb that it only takes $10,000 to test this. We’re going to give you $10,000.” Went to the associate, “Look, just dispense $10,000 in ads to your account. We’ll cover it. We just want to know how effective online ads are for this company.”
For us, $10,000, we’ve got $100,000 in cash total, you’re just going to offhand give us like 10 percent of our budget in ads. We’re like, “Yeah, that sounds like a really fair test. We’ll do that.” That was actually really effective and that brought in a lot of customers. We still have customers from that batch too.
Andrew: Who was it?
Andrew: What’s the venture capital firm that did this?
Ian: It was actually Khosla Ventures.
Ian: Yeah. So, it was mind-blowing for us, but for them it was like “Why would I invest without this data?” It was just like a rounding error to them.
Andrew: What did you learn about advertising when all you had was $10,000?
Ian: The other cool thing actually was they hooked us up with an expert. We hadn’t done advertising before. We’re like, “This guy’s friend does the line acquisition for this portfolio. You come in here and tell him how to spend this money and how you need to optimize your site for this test and all these things.” We learned a lot really fast. They basically just gave us all this stuff for free.
Andrew: Wow. Techstars can actually really be powerful with this network of mentors and investors that they connect you with beyond getting the funding.
Ian: Yeah. It turns out a whole bunch of things in your business, there’s all this expertise and all of these parts of the business that need to be done really well and you don’t need to invent all of it.
Andrew: Someone else had already done it like ad buys. What about this, Ian? This is in important part of your business, user acquisition, customer acquisition, and you don’t know how to do it because Vinod Khosla’s friend is the guy who’s doing it for you. So now your business depends on that guy.
Ian: Yeah, exactly.
Andrew: Did you eventually learn it? You did, right? You guys are advertising on Facebook.
Ian: Now we have like a ten-person marketing team that like we A/B test all kinds of designs for the website and we’re A/B testing constantly. We use Optimizely a lot, which is really helpful. But you know, back at that time, we had no idea even what the tools were or, “People A/B test ads? That’s really smart. We should do that.”
We don’t have to invent statistical methodologies for testing what’s effective. You just, “Oh, that’s what you do. Great.” And get to a baseline first on what people are doing to already make a profit and then you can innovate from there. That’s great, once you’ve got something working well. But to get from nothing or bad to decent, it’s not worth it figuring it out for yourself.
Andrew: All right. I want to know more about how you got more customers and how you evolved the software. But first I’ve got to do an ad for HostGator. I had to go and get the gator to make sure that it stays in people’s minds. This is a blue HostGator gator, actually. Does this help you remember? Are you going to remember HostGator because of this gator I’m holding up?
Ian: I most definitely will.
Andrew: You will. Have you ever used HostGator?
Ian: I have not.
Andrew: All right. Here’s what they do. They’re a hosting company with incredible uptime and unbelievable customer support. They are they for their customers. You can test them before you even sign up. Let me ask you this, Ian. If you were going to start over fresh, brand new guy, going to start a business because you’re determined to start a business and all you have is the knowledge in your head and a HostGator account, what would you start today?
Ian: What would I start today?
Andrew: Yeah. Is there a business that you would start right now or a website you’d start right now if all you had was the knowledge in your head and a HostGator account?
Ian: I think there are a lot of businesses you could start with that.
Andrew: What’s one that you could go for?
Ian: I mean, hey, you could start a blog.
Andrew: Okay. It doesn’t sound like you’re one of those guys that has a bunch of ideas in his head and just can’t wait to get to one of them. This is it, Bench is the one for you.
Ian: Bench is the one for me.
Andrew: That’s it? All right. Well, a blog is actually a really good place to get started. What do you think about this? Someone had an idea for something–actually, let’s supposed you had your idea for accounting software but you didn’t have the ability to code it. I gave you a HostGator account and you mentioned blogging.
Would it make sense if you blogged about bookkeeping for a few months to understand the problems and report back, to have an excuse for talking to people who need bookkeepers so you understand their problems and write up articles for your blog about it and develop an audience and get their email addresses so when you finally do launch a full version of your bookkeeping service you have potential customers–does that make sense?
Ian: Absolutely. And actually, before I started Bench, I had no idea how common that business model was and how many successful businesses are based on blogging. Something like 6 or 7 percent of our customer base is actually blogs.
Andrew: They’re bloggers.
Andrew: Yeah. One of them, Patrick McKinsey, is a guy who started with a little bit of software but really what put him on the map was all the blogging that he did about the software that he created, how he was building it, what he was learning, what wasn’t working for him.
All right. Why don’t we go with blogs? If you need a blog, WordPress is available on HostGator with one-click install. All you need to do is go to HostGator.com/Mixergy. They’re going to give you that unbelievable deal of 30 percent off. They’re going to give you 24/7, 365 tech support. That means they have a human being there to answer your questions or issues at any time.
They’re going to give you unmetered disc space, unmetered bandwidth, unlimited email addresses–frankly I think just about everybody is going to give you that. But they’re also going to give you a $100 AdWords offer so you can try ads, $100 search credit and like I said, make it really easy for you to install WordPress.
If you already have a business and your site is up and you’re not happy with your hosting company, check out HostGator. They’ll make migration so easy you won’t believe it. In fact, I think they’ll even do some migrations for you. Go to HostGator.com/Mixergy. Sign up. You won’t regret it. Frankly, if you do, they have a 45-day money back guarantee. Check them out.
All right. The next milestone for customers–so, you get your own. You go door to door, so to speak or go to your mentors and ask them whose door you should knock on. Then Khosla Ventures gives you a $10,000 ad buy. They help you out with it. Did that work out?
Ian: Yeah, actually. It worked out surprisingly well to the point where it actually helped us get a term sheet from another VC because we had that data now.
Andrew: But Khosla did not invest?
Ian: Khosla didn’t–well, we got very close, but at the end of the day, we ended up working with someone else.
Andrew: Okay. So, the next batch of customers, where did they come from?
Ian: We actually started scaling up ads as an acquisition channel, actually. While we started out with AdWords, we tested out Facebook and Facebook ended up being way more effective for us. In fact, it’s actually one of our main acquisition channels today.
Andrew: I see that. You guys are advertising on Facebook. A large percentage of your traffic is coming from Facebook. When I look at social using SimilarWeb, they say that 85 percent of your social traffic is Facebook. I would have thought LinkedIn would be up there. LinkedIn is less than 10 percent.
Ian: Mark Zuckerberg is really good at building an ads platform.
Andrew: What did you guys do differently? I know you’re not going to tell me right now what you did well on Facebook ads, but what did you do differently in the early days when you were still trying to feel your way through it?
Ian: Actually, back then, it was kind of in the earlier days of them getting off the ground as an ad platform and we were shocked at how easy it was. From the perspective of starting off with AdWords and having to wrap our heads around that, which took months and months and figuring out, “What software are we going to use to track all this stuff? Are we going to use HubSpot? Are we going to use Google, their built-in tools? Are we going to use KISSmetrics?” We tried so many different things.
But once we had a baseline of how we were going to do it and then we hooked in Facebook, we had all this machinery now which told us, “Okay, you spent $10,000 in ads and you got five customers.” Then we could go, “Okay, so, that’s $2,000 per customer. Interesting. So, if I want to go get another 10 customers then it’s going to cost me $20,000.” It wasn’t actually–those aren’t the real numbers, but that’s sort of like the math behind it. Once we were able to really have this predictable method of doing that and know like, “Put this much money into the Facebook machine.” I make Zuckerberg this much richer and this is how many customers I get.
Now you can actually go to investors and go, “You should probably give me another $1 million because I’m going to put it in here and it costs me this much money to get a customer through this ad platform. Hey, this is how much money we make over the lifetime of that customer and this is going to be really good business.” Because it’s numbers-based and its’ predictable, they just love that.
Andrew: What’s one of the first things you learned about doing Facebook ads successfully?
Ian: You know, I think my cofounder would probably be the better person. I can take a lot of credit for the success but he’s the one who actually built it all and was in there doing the ad campaigns. But the most important thing was making sure we had really clean data and knowing when I spent this much on a campaign, this is how many customers came from it and constantly being on top of that.
Andrew: What software do you use, Ian, to keep track of all that?
Ian: Today, I think we use some sort of custom–now that we’ve had programmers who can do these things–we have this custom homespun system that combines Google AdWords and the Facebook advertising platform and sucks it down into our own system.
Andrew: Really? And before that what did you use?
Ian: We used HubSpot. That was actually pretty good, I’d say.
Andrew: I didn’t even know HubSpot did that. I thought they were a publishing platform only.
Ian: Yeah. That’s what we were mainly using it for at the beginning, how many customers we were getting from our different campaigns.
Andrew: And they ran your site too?
Ian: Yeah. We connected it into our site.
Andrew: You weren’t using them as a CMS, were you?
Ian: No. Actually, we did a lot of homespun stuff at the beginning. Now for our blog now we use Squarespace. But a lot of our site is actually custom-built. It’s basically actually part of our app and we run it on Amazon Web Services.
Andrew: I see. I was doing a view source on your site, and I just kept seeing Fastly everywhere. That’s a content delivery network. They make it easier for you to deliver your images faster to your audience.
Ian: Yeah, CDN. Exactly.
Andrew: CDN. So, what about the product? We talked about how your marketing evolved. How did your product evolve from that one landing page to–actually, how did it evolve after Techstars?
Ian: How did it evolve after Techstars? The most important thing–and it’s like the stuff that’s right in front of your face that you miss, like some of the most painful stuff for your customer you get so blind to because you get so used to pitching around it that it became sort of invisible to us and we woke up one day, “Man, this sucks. It’s painful that we’re putting this sucky thing in front of people.” It was really about how people get their bank data into our app. To this day we’re like, “How are we going to make this better? Even if we make a 10 percent improvement, it’s still massive.
Andrew: The bank data into your software? That’s one of the hardest things?
Ian: It was in the beginning. Because it’s like banks don’t exactly hand over the keys to their API. How are you going to go get that data? The first way we did it was we used this provider called Yodlee. One of the things Techstars did was, “Oh, we have this problem. People are having to download all these files and upload them. It’s a pain in the butt.” “Oh, did you know we have this partnership with this company called Yodlee? By the way, you can use them for free for the first year.”
It was like, “Oh, really? That’s kind of cool.” We had no idea how anyone was getting to banks before and then all of a sudden we knew three different ways to do it, Yodlee being one of them, the one we chose. Now we’ve gotten more sophisticated at it and built our own systems and built our own partnerships with banks and all this kind of stuff that you can do when you’re at scale.
But that key piece at the beginning was like–once we actually were able to get to a place where you enter your bank info once and it runs on autopilot, that was like magical for people. That was the–because I don’t want to go in there every two weeks and make sure it’s working properly. Kind of like Mint, you set it up and you’re really diligent in the beginning and six months later you come back ND you’re like, “What a mess.”
And you don’t want to have that and come back to Bench after six months and be like, “All we need are these 70 documents from you and we’re going to clean it up.” It’s still better than doing it yourself, but you would be better if you came back in six months, “Oh, good to see you again. We’ve been doing everything while you were gone and it’s all wrapped up in this neat little bow.”
Andrew: Does it really work that way or is someone listening to me as a customer of yours going, “That’s not really my experience? My experience is that’s the ideal, but frankly, they get it wrong sometimes. They don’t have enough information. Some of the stuff is out of date.”
Ian: Well, it’s all about percentages, right? Especially if you’re using the higher volume banks, for example, that’s where we’ve been able to put in the hours. There are so many Chase accounts, we have three different systems that connect to Chase that are going to basically download your data. With some other smaller banks, sometimes they break and we have to send you an email and say, “Hey, sorry, we’re going to have to get you to enter your credentials again.”
But it’s the point where, “Hey, this happened.” And maybe once every three months you have to enter your credentials rather than, “Hey, sorry, do you mind going and hunting down these 50 bank statements.” It’s a matter of degree. It gets better and better over time. Eventually every bank will be the same as the best ones we have.
Andrew: Essentially you’re a pseudo service. Investors hate to put money in these kinds of businesses, right? What were you going to say?
Ian: So, it’s interesting. It’s like define service. So, what they hate to invest in are businesses that aren’t repeatable. Like, it you’re selling your expertise, well, you have a limited number of hours in a day.
So, you can make $100,000 a year using your time, but when you want to get to $1 million, how do we get ten yous? That’s not repeatable. How are you going to make sure those people are as good as you if you’re just selling your own personal expertise. At least in this kind of business, which was book keeping and service delivery. Other things like media are more scalable with a few people.
But it was really getting it down to a point of, “Okay, this isn’t going to rely on the expertise of a few people. It’s a process. If I need to scale it up by 10x, all they do is they follow this set of steps. We’ll hire ten times as many people and they’ll do it the same way and it will still work.” That was really the key piece.
Andrew: If you can show them that this is repeatable, it’s scalable, we can hire people when we need it. Where are your people? Where are the bookkeepers?
Ian: They’re all in house, they’re all here in our head office.
Andrew: Where’s the head office?
Ian: It’s in Vancouver, Canada.
Andrew: Wow. You’re hiring in Vancouver? Why aren’t you going overseas?
Ian: Well, what we found was our priority was to get efficiency and make it so humans don’t have to do–you know what’s cheaper than sending it overseas is having a person here use a completely automated tool to do it. Once you send it overseas, especially if it’s not your–a lot of how companies do it is they’ll hire an outsourcing company and you don’t actually control the process at that point. So, what differentiates you. They’re the ones doing the bookkeeping.
Andrew: But you can hire people overseas and have them be your own employees overseas.
Ian: Eventually when you’re at scale. Especially at the beginning we couldn’t do that. So, that wasn’t going to work. Now that we’re here and we’re already efficient, it’s like, “Well, let’s keep it here. It’s working really, really well.” Guess what? The labor here is such a low percentage of the cost that I don’t care about squeaking out an extra point or two of margin if it’s going to sacrifice a whole bunch of things that we care about.
Andrew: What about the fact that there weren’t a lot of IPOs for companies that target small businesses. Is that an issue for investors?
Ian: I think there was a problem in that there weren’t a lot of IPOs for a lot of companies for a long time. It wasn’t just SMB. Actually, we’ve seen a whole bunch of SMB companies IPO–Shopify, Zendesk, Xero is public as well. It went public very early. Actually, it’s not really a concern. Now you have Gusto and Zenefits racing for who’s going to be the winner in SMB payroll.
A few years ago, actually, that was an issue. Investors were saying, “SMB doesn’t work. You can’t make money in SMB. I’ve just invested in all these…” A lot of investors, whatever was their winner is what wins and whatever was their last loser is what loses. So, if they invested in an SMB company and it lost and there’s no other examples of someone winning, SMB isn’t possible. Its’ nothing to do with whether it’s actually impossible or not, its’ just what their last experience is.
Our investor or seed investor, his big win was this company called On Deck Capital, which makes small business loans. He took one look at us. While everyone else is going, “SMB doesn’t work.” He says, “My biggest winner is someone who goes out, calls SMBs and basically gets them loans.”
Here’s this company that basically calls up SMBs and deals with their back end finances. He was comfortable with the fact that we had people and processes behind the scenes and that we have a sales force and we have all these costs because we were selling something that solved a problem for people. It turned out that he was right.
Andrew: What did he teach you about getting new customers?
Ian: On Deck?
Andrew: The investor–who was it? On Deck?
Ian: The investor was Matt Gorin from Contour Ventures.
Ian: He had never scaled a sales force before, but he would actually hook us up with people that had. But I’d say the biggest thing we learned from mentor was seeing On Deck’s sales operation and seeing a sales floor with 100 sales people calling up small businesses and it was actually a successful profitable business.
Andrew: Watch this office full of people who are making cold calls?
Ian: Yeah. Exactly. I’m like, “You built a profitable business off of people calling it business. “Yeah, you just have to get the numbers to work.” Sure, if you could call people and they say, “No, this is dumb. Of course you’re not going to make money.” If you call people up and you’re like, “Hey, guess what. I have a compelling pitch for you. Can I have to minutes of your time? And they actually buy it, then yeah, you will make money. But you have to make sure you’re building it in the right way.
Andrew: Do you guys do any cold calls? I know I asked you before a little about it
Ian: We actually just started doing it for customer segments that were seeing like a huge amount. Our customer segments where we had super low churn and super high conversion rates–like, for example, online sellers. If I can convince an online seller just to let me give them a free month of bookkeeping, like it’s October now, “Let me do your September bookkeeping for free,” there’s a 72 percent chance that person will actually buy our service. It’s like man, this solves a problem.
It’s amazing. It’s like, “Why are we sitting here not talking those people? Get out there.” Only so many people see our ads. There are a whole bunch of people that we have to basically get on the rooftops and shout so they’ll hear us. But you have to make sure that the offer is compelling because if you’re going to call them and they’re not going to buy, you’re just wasting money at that point.
Andrew: I did an interview with the founder of ZenPayroll last year, which was awful. He wasn’t giving me much in the interview. But I also didn’t know enough of the behind the scenes stuff. Since then I’ve learned about their sales process. Have you heard anything about it?
Ian: I know a little bit. We actually work with them quite a bit.
Andrew: What do you know about it?
Ian: I know that a lot is like based on word of mouth and happy customers referring people.
Andrew: That’s the kind of stuff that I heard that was frustrating me in the interview. Here’s what I’ve heard since then now that I’ve dug in and said I know there’s something more there.
Ian: Tell me. That’s what they told me too.
Andrew: You’re talking about this whole collection of sales people. They have this from what I understand. I hope I’m getting it right. Here’s the process. They have this system were they look at LinkedIn profiles of HR people who have between–I forget how many employees. They get their information. Ten they match it up with email addresses.
Then they have a service that puts together an email. Apparently it’s a fantastic cold email that gets dropped into it all kinds of personal information about the client. A phone call goes out. There’s a follow up process I think there’s even a phone call, but by the time they’re on the phone with a customer, they’ve warmed them up via email using this whole process. As I understand it, they have an army of cold callers or an army of sales people, like you’re talking about, which is how they grew to be as big as they are.
Ian: That’s interesting. I didn’t know that. I know that Zenefits did that.
Andrew: Am I thinking Zenefits instead of ZenPayroll?
Ian: Maybe, Parker Conrad?
Andrew: You know what? I just happened to hear about it over scotch and that’s where I couldn’t take a note. I was pretty sure it was ZenPayroll but you may be right that it was Zenefits.
Ian: They use this tool called LeadGenius.
Andrew: Yes, they use that.
Ian: Absolutely. I learned from that from other VCs who said–this was back in the days when SMB won’t work–“It only works if you’re Parker Conrad and here’s how he did it and you have to do it this way.”
Andrew: I see. All right. So, you’re right. Thank you for correcting me. Boy, that’s mind-blowing. So, why is it right for him and not for anyone else?
Ian: Well, it works for him because he’s selling a product to bigger companies. So, SMB, there’s a huge different between small and medium. The customers that we sell to, they don’t have an HR department. So, you know, you can’t call up and be like, “You should switch your HR over.” Then when you get the deal, there are 100 employees is the ideal size is big enough that it all made sense.
For us, we’re selling to the independent business center. They might have no employees. They might have five employees but it’s pretty small. We can’t necessarily like bombard the entire market like that. We have to choose segments where we know that our pitch is already so compelling that they’re going to say yes.
Andrew: What’s a segment that’s not compelling for you?
Ian: Only sellers, gyms, freelance software developers, financial advisors. There are these segments where like we’ve just built it in such a way like, “Oh man, I get it.” We’ve already built a product those segments of the market love, at least a big enough percentage that it’s like almost assured. The 28 percent that don’t buy, it’s like, “Well, my business is not going that well. I don’t have money right now,” all these things like, “Maybe I’ll buy it down the road,” which is another thing where it’s like that conversion rate is huge.
It’s just like, “Get as many people to do a free trial as possible. In other areas where they have conversion rate, it’s like, “Well, the match just doesn’t work out for me to pay $500 for you to go to sell to someone. You’re going to make enough sales. It’s not going to make sense for the sales person or for us.
Andrew: You helped me understand why–the first thing you said was online sellers and I think the audio didn’t go through as clearly because I was talking as you were talking. But that explains why so much of your traffic comes in through Shopify. You must have some kind of partnership with them, right?
Ian: We don’t have an official partnership. We just have a lot of content that they like. We basically put a lot of effort into writing stuff for sellers that Shopify goes, “Oh man, this is really good. Can we borrow this?” We’re like, “Absolutely, now that you mentioned it, that would be a good idea. We actually kind of write it with Shopify in mind as well and we kind of pitch to them sometimes.
Andrew: And then they put it on their blog?
Ian: Exactly. That’s how we started out when we were smaller too. You’re not going to call up the head of partnerships and be like, “Hey, you’ve heard of us. We should totally work together.” It’s more like, “Who are you?” But they’re always looking for content. They need something to put on this blog. So, if you need something good, we actually did that with a few different companies.
So, that was actually another way. I totally forgot about that, actually. Now that we’re talking about it, we were like, “Who needs content? How can we write that and solve their problem and then we get exposure and they get something to put on their blog.” So, yeah, Shopify was an early example and that’s worked out really well for us.
Andrew: It looks like FreelancersUnion.org is another site and DesignerNews.co, which is like Hacker News for designers or Reddit for designers. Actually that, I guess, is pointing to articles on your site.
Andrew: Any issues with being Canadian and working from Canada for American companies?
Ian: I was so terrified in the beginning that there would be. But it turns out that people see Canada as their nice polite northerly neighbor and not really as like a foreign country. So, whenever we talk to people, a lot of the times it’s like, “Oh, you’re in Canada? My sister lives in Canada. I’ve been to Vancouver. It’s a beautiful place.” From the technical side of doing it, not at all. Bookkeeping has got to get done. It’s a process. There are smart people here who are going to do it.
Andrew: I keep going through my list of things I said I’d get to. One of them is increasing prices. How do you get to increase prices in a world where you’re selling so publicly, where we all talk to each other. You want to just experiment with pricing for a bit. How did you do it?
Ian: The first thing we did was we set a really low price so that I knew if someone said no it wasn’t because of the price. Like what bookkeeper is going to do your bookkeeping forever for $50 unlimited? That’s unheard of. So, if someone says, “No, thank you.” It’s not because my price is too high. It’s because my product sucks.
So, we wanted to sort that out first to the point where people were actually buying and actually liking it. Once we had a high enough conversion rate on pricing, we said, “Let’s try increasing the price and see what happens?” Now we know the product hasn’t failed so we’re not worried it’s going to fail because of price.
So, then we just basically would grandfather all the old customers. We still have one customer who pays $49 a month. We have, I think 15 customers paying $69 a month. And we just honor that. Look, it’s fine because eventually if you’re really growing exponentially, that’s become such a small percentage of your customer base, you don’t care. You’re willing to basically take the lost revenue on them because they bet on your early and you value their businesses. So, we have all of those sort of like legacy plans.
I have a friend who’s like, “I have this AT&T plan from five years ago and I get unlimited data for like $30 a month.” It’s like one of those where they signed up early. And then we just increased it over time and keep on incrementally increasing it. See what happens to your conversion rates. And eventually when you see a drop-off, you go, “Okay, too much, back it off.”
So, that got to the point where ewe went to $69. We went to $99. We went to $125 and we started seeing a drop-off in conversion rates. We backed it off into $99. Then we started breaking out into tiers of service. So, we’re going to keep the base price at $99 and we’re going to have a pro plan or an expert or whatever the names were. There was like one $100, $150 and $250.
We started increasing each of those very slowly as well. Then it went to like $100, $170 and whatever. Then each of those prices eventually see a drop off and you move it back. But this whole time you’re selling and this whole time there are people who are just getting great deals on old plans. Now, the one thing we really had to do–it was painful about the revenue but it was just to be fair to your customers–when we actually backed off our prices again when we went actually the $125 plan, we’re going back to $100.
We called up all those customers and said, “We’ve lowered our prices now and we’re going to lower you down to the $100 package.” At the time it was noting we had to do. They would have kept on paying and they were happy. Just for our own integrity we felt like if I’m offering someone the exact same service for 25 percent less now, I’m going to let you know so you can get a price adjustment.
Andrew: You also went from charging based on expenses–I’m looking at an old sheet here with your pricing that said the lower plan was a starter based on having under $15,000 in monthly expenses. The team plan, which is the next high up is for companies that have under $30,000. The next one, under $75,000. That seems also like a hard transition to make. Today, actually, it’s based on how many bank accounts you have, how many credit card accounts you have, how many add-on services you want. That’s a pretty–how did you figure out what to charge for or what to charge based on?
Ian: That was a change we made probably around March of this year. So, it’s actually pretty recent. But the problems we were seeing with charging based on expenses were there were two things. So, one is on average we were profitable. But we could actually lose money on a customer–sure, they only have 10,000 expenses but they have like 10 bank accounts because we actually have a fixed cost per bank account, how much it costs us to go in and connect and pull in the data and make sure it all makes sense against all your other data.
First off, it didn’t make sense for how it actually cost us internally. Like when you don’t’ charge for something that costs money, people will just use it to infinity. So, you moving from $14,999 to $15,000 in expenses does not increase my costs at all. In fact, going from $2,000 to $20,000 hardly increases my costs. We based it on what actually costs money on the cost side so that we could actually make sure that we were covering our expenses in every customer.
But the bigger thing was–that was more of like to make a smart sustainable business. But the reason it mattered to the customer was we weren’t actually charging when we were adding more value, “Oh you wanted add-on service? Okay. I’ll charge you more for that.” But you don’t charge me more unless I’m actually giving you something new. That’s like getting charged more that you feel okay about. “I’m getting more. I’m paying more. This makes sense.”
When my business grows, I’m still getting exactly the same thing. I’m still getting the same financials, but this month I happened to spend $17,000 and last month I happened to spend $10,000 and now I have to pay you more just because I spent more money? People will like, “Wait, that doesn’t make sense? You’re not actually doing anything different for me.”
It felt a bit like getting gouged. For the longest time actually, we had a lot of trouble upgrading customers through our plans. It was just not a smooth conversation. So, figuring out how to link it to actually like, “You’re getting more value and you’re going to pay more at the same time,” made it just a much more smooth like, “Oh, okay, I get it. This feels fair.”
Andrew: I get that. It does make sense. Cool. What’s the best part of having done all this?
Ian: The best part of having done all this? Well, the coolest thing is now I have a platform to go do more stuff. It’s like now that we’ve–
Andrew: What do you mean?
Ian: Well, at the beginning, two engineers were just scrambling to get something. “Please will you buy my bookkeeping?” was like my life. And now we’re like, “We have some serious resources now. What would actually be inspiring to go build?” And actually figure it out, map it and actually have the resources to like, “We’re going to put ten engineers on this, five designers on this and it’s going to blow people’s minds.”
That’s why I love going into work every day because now we get to build stuff that like I can imagine it and be like, “Oh man, this is going to be awesome,” and actually bring it to life and do it in a short time. I’d say that’s the coolest thing now.
Andrew: You know, I have your revenues here. Do you feel comfortable saying it here on Mixergy?
Ian: You have my revenues? How did you get that?
Andrew: Can you say it?
Ian: I’ll say it right now–it’s probably changed since we last spoke. We’re now between $4 million and $10 million in revenue.
Andrew: Annual revenue?
Andrew: That means so far, 2015, you’ve done more than $4 million?
Andrew: I’m trying to figure out how much of that–
Ian: We’re between a $4 million and $10 million annual run rate right now for revenue.
Andrew: I see. So, if we take last month’s revenue, multiply it by 12, it’s at least $4 million.
Andrew: Are you guys profitable?
Ian: We are profitable on a unit basis in terms of, “I charge a customer this much. I get this much from them. Here’s all the customer service and everything.” But we spend more money than we make in revenue in terms of, “Okay, We’re going to spend more on engineers. We’re going to spend more on salespeople. We’re going to spend more on marketing.” That’s why we raised money, so we’re not limited, “Okay, I could hire two people because that’s how much cash I have in the bank now. I can hire ten salespeople and grow faster because I went and raised the money.”
Andrew: Cool. The company is Bench. You can see that at Bench.co. If you know anything about ZenPayroll and what they’re doing to grow, please come over for scotch or we could talk on the phone. We could keep it super private. I won’t what they do private unless you absolutely insist. But I’ll keep who you are private. But I’ve got to find out what happened with that company.
Andrew: All right. HostGator.com/Mixergy–you’re a previous sponsor. How did you feel I did on the ads for Toptal and HostGator?
Ian: I really like it. I like how you work it into the conversation. That’s pretty cool.
Andrew: I like that you were willing to roll with it and join me in the ad for them. So, it’s HostGator.com/Mixergy and if you need a developer, go to Toptal.com/Mixergy. If you like this interview, please rate it highly at iTunes and if you haven’t yet subscribed to the podcast, go to Mixergy.com/podcast. Cool. Thanks for doing this, Ian.
Ian: Absolutely. Thanks for having me.
Andrew: You bet. Bye, everyone.