Master Class:
How to launch a profitable YouTube campaign

Taught by Eric Siu of Single Grain

Master Class: Profitable YouTube Campaign

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Andrew: This session is about how to setup your first profitable YouTube ad campaign. It’s led by Eric Siu. He is the CEO of Single Grain, a leading digital marketing agency based in San Francisco. Their clients include many companies whose names you know, including Intuit, Yahoo and Mint. My name is Andrew Warner. I’ll help facilitate. I’m the founder of Mixergy. Eric, thanks so much for being here.Eric: Thanks for having me, Andrew.Andrew: We agreed that we wouldn’t give the name of one of the first companies that you tested, what you’re about to teach us on. But they were desperate. And that’s what got them to try YouTube. What was this situation that they were in?Eric: Yeah. So, the situation was they only had five months of cash in the bank. This is a technology startup. And then, the CEO pulled me aside and said, “Hey, Eric. There are 54 people’s families riding on your shoulders right now. And, you know, you need to make it happen this month or else,” pretty much.

Andrew: I see. “Or else” pretty much meaning, company’s gone, these people who work at the company are not going to have a salary anymore, and some of them are going to have to go back home to their families and explain why they are going to have some challenging months ahead. And there was someone who was managing their marketing for a while. They tried a bunch of different things. How did you know, “Ah-ha” of all the different things that they tried and all the different things that you, Eric, knew, YouTube was the place to go. How did you know?

Eric: Yeah.

Andrew: I just knocked my cup over. It’s all right, though. Yes.

Eric: Yeah. So, this company, there is a lot of… its online education, so there’s a lot of video involved. And naturally you would think that when people are looking to learn things online, whether it’s DIY stuff to fix your home, whether it’s to learn coding or web design, you would go online to learn the stuff. So, I said, “Hey, there has to be something here with YouTube.” So, I opened up a campaign and I took a look. And, what I saw was, I saw traction. And that’s the number one thing you look for when you run any type of paid advertising campaign. You’re not looking for it to get better over a day or a week. You’re looking for traction.

So, I saw a hint of traction where there was a good amount of views coming from it. There was some engagement, people were watching the videos, and there were maybe one or two conversions from it. And the cost per acquisition, for something that was just starting out, the number wasn’t that high. So, I was like, “Hey, there’s something here and I think this is worth betting on”.

Andrew: And once you did, what were the results?

Eric: Yeah. So, I decided to go all in on this. The results were that we increased annual run rate for by about six million dollars. And it took about eight months to do it. And it’s been their number one user acquisition channels since then.

Andrew: And that’s important to point out. It took eight months for you to figure out what you’re about to show us, and to test out the process. It also cost you some money along the way. You say $50,000, big mistake. What, what did you do that cost you 50,000 that you can help us avoid doing as we go through this session.

Eric: Yeah, great question. So, the first three to four weeks we started getting traction, but I burned $50,000 because I tested too many different campaigns, and I set the targeting and the budget way too high. So we were eating up a lot of views. The problem that we were getting before was that the videos weren’t getting an adequate amount of views. So, I set it, I opened up the fire hose, but I opened it too far, and I let it sit there for a little bit. So, the mistake was a $50,000 mistake. And in this video, or in this lesson, we’re going to avoid making those mistakes. We’re going to translate my learnings down to you, so you don’t burn 50,000 bucks.

Andrew: Aces. All right, here are the big ideas that we pulled out before the session started, to help our audience to get some of the results that you’ve gotten. And the first one is you said to use “instream ads.” Instream ads. What are the different ads types that we have?

Eric: Yeah. So, we have instream ads. The instream ads are the ones that you’re able to skip over, these are the pre-roll ads. You can also have them in the middle or at the end. But they’re the skippable ads, you watch five seconds, you can skip. You also have the, they’re called the “action overlay,” that actually sits right under your video in the center. And then you have a companion banner, that’s a 300 by 250 square ad that you can put on the right side.

You can also run an ad similar to the instream, but its unskippable. So, it’s almost as if you’re watching a TV advertisement, where you can’t skip it as well. And then, there’s also another one I believe it’s called, “the right in-display banner.” So, you have the related videos on the right side when you’re watching a YouTube ad. It’s at the top right, and it says, “Sponsored Video.” So, those are the ad types that are available to you.

Andrew: So, you don’t want us to get the sponsored video. It makes sense. Who is going to go out of their way to click? I guess maybe some people might. I can see it working. But you’re saying that’s not what’s effective. But you also don’t want us to play, or to buy the unskippable ads. Why do you want us to favor the skippable ads over the ones that are unskippable?

Eric: Great question. So, the skippable ones, believe it or not, these actually convert the best and drive the most volume. For most people, when they think about videos, video advertising, they’re thinking, “No, this is like TV advertising. This is like, for branding purposes.” But, when you’re trying to drive conversions, the fact that you have something skippable, well, the people that skip are probably unqualified in the first place.

And you also get another side benefit as well. When you’re using instream ads, if people watch 30 seconds, less than 30 seconds, you’re not charged for the view. And also, if they finish the video before 30 seconds, that’s when you’re going to get charged. So, the key takeaway here is that you need to make sure that you’re getting someone to take an action before 30 seconds. Perhaps at the 25 second mark. And you want to create something engaging for the first 25 seconds.

Andrew: I see. So, the fact that you don’t pay when someone skips, means you’re getting a qualified person, someone who’s engaged enough, that they at least continue to watch. Here are the different options, I’ll just bring them up on the screen. But you mentioned them, I just think some people are more visual and I want them to have a look at them. These are the different options, that’s the one that you want us to take. True-view, instream ad. Not true-view in display ad. Not the non-skippable, not the overlay, in-video ads. Not the display ads. Here’s why we pick it. Ba-da-bing. Right, create new ad. And you want us to select, “let me choose,” when it comes to ad formats. And that’s what we get to pick in stream ads.

Eric: That’s correct.

Andrew: Okay. All right. So, that is the first thing that you want us to do. Let’s go back to the big board here, and take a look at the next one. Next one is that you want us to use “Apple-like” videos. What do most people do before we get into the kind of videos that you want us to use? What are you trying to keep us from doing?

Eric: Yeah. So, I want to preface this by saying that you don’t need to limit yourself to just Apple-like videos, it’s just what you’ve seen that tends to work. What I’ve seen, there’s videos like the Airbnb type of videos, where it’s like an explainer video, it’s super high quality. Whenever you start to use a human element, we’ve seen those convert better than people that use animated video. So, we’ve tested animated videos, we’ve tested using humans, and believe it or not, when you have like a simple white background, and you have someone that’s being interviewed, there’s almost like a personal touch to it. And it seems like those, what we’ve seen for the numbers is that these convert better.

Andrew: Like this.

Eric: But again, these really varies across the board. My key takeaway here is I really encourage everyone to test it.

Andrew: But this is what you found that works well. A really polished video, here’s Ryan Carson, CEO and founder of Treehouse, past Mixergy interviewee and course leader. It’s him on a white background, really crisp, very much like Apple, the simplicity of it. That’s what you’re aiming for. Why shouldn’t we, especially for just trying something new, just do a cheapo ad? Get our iPhones out, record a video of ourselves explaining what the thing is and run it?

Eric: Yeah. So, what we’ve seen in the past, we’ve tried the cheapo ads. We tried to go cheap. It’s just the engagement, what we’ve seen in terms of engagement numbers, is way lower than something that’s high quality. And, when you watch TV, I never, personally for me, I don’t remember the cheapo ads, right? You want to come across as having something that’s high quality and you want to make sure your company’s high value.

But, having said that, if you’re trying to run some type of, I don’t know, if you’re trying to run some type of affiliate deal, or it’s like a very simple weight-loss type of thing, maybe you don’t need something super high quality. So, again, it’s the, answer is cliche, but you want to make sure you test. But the numbers that we’ve seen is that quality tends to win all the time.

Andrew: Let’s take a look at that, by the way. This is something that you’re… it’s not disconnected from you. I’ll hit mute. People can watch it, I’ll link to them. This is what it looks like. You used to work for Treehouse, right?

Eric: I used to work for Treehouse. This video is a great example.

Andrew: Is this an ad? It’s a minute twenty-one. It’s…

Eric: Yep.

Andrew: That’s the length of an ad that you guys used to create.

Eric: Yep, this was before we started finding out the goodness of the 30 seconds, skippable videos. And I wish I had a better example for those. But unfortunately I don’t have it off the top of my head right now.

Andrew: So, it would look like this, it would be 30 seconds, and it would allow people to skip, and the key moment where we want them to get to is what? How far in?

Eric: Yeah. So, in this case we’re actually going a minute twenty seconds, right? But in an ideal situation in the newer videos you want them to take an action at 25 seconds, because the video, you’re going to get charged at the 30 second mark. That’s not to say don’t make 60 second to 90 second videos. Those work as well. But one thing you’ll want to test is another type of ad creative is taking action at 25 seconds and just anything before 30 seconds, if that makes sense.

Andrew: Okay. We can put, we can put that link on, and people can click it, and take that action, come to our site, buy, etcetera.

Eric: Yeah. Just, you get this offer now, click on this, and then they’ll just click on the ad, and then, boom.

Andrew: Okay. By the way, what is that over your shoulder? That black thing.

Eric: This black thing is my trusted microphone.

Andrew: Got it.

Eric: You can see it here. Yeah.

Andrew: Oh, I see it. I can kind of make it out a little bit. It’s, that is the Blue Yeti on a boom arm, and you’ve got a pop filter in front of it.

Eric: That’s correct.

Andrew: Wow, great mic. I didn’t know that it can sound that good from a distance. I thought it was one you needed to get really close to.

Eric: That’s what I thought too. But it’s gotten better and better, I think.

Andrew: Yeah. I like that you’ve got it close to you, so that we can really pick up your audio. All right, on to the big board again. The next big one is, include a call to action at 20 seconds. You just talked about it. Is this an example of the kind of call to action that you want us to have? Can we make it look like that?

Eric: Yes. So, this works, this looks quote-unquote, “low quality.” So if you do have a good design team, a good creative team, I’d encourage you to do something a little better. But the structure here is good, because if you look at the left side, you look at the 13, there’s a count-down there. It’s like, “Wow, I need to take some kind of action.” And then there is a button, and it’s crystal clear there that you need to press that button. “Get a quote in under five minutes.” You have some type of action for them there, it’s very straight forward. And you can see, you look at the red line there, the video is almost finishing before the 30 second mark. So, that’s actually perfect.

Andrew: I see. Yeah. Really clear button. For some reason, drawing a circle around the button, I’ve heard people say increases conversions, so they did that. And the countdown I hadn’t seen before. What do you think of the quality of the video. Here’s what it looks like. Let’s bring up my browser there.

Eric: Oh, good, so I did drop a link.

Andrew: Yeah. So, we can include this. Is this something that you guys have done?

Eric: No, this is actually something that a friend that has done for another company. And we worked on it together, we give ourselves some feedback. And they pumped it out.

Andrew: So, what do you think of the quality here? We’re looking at a cartoon that is less expensive, I think, to get made, than what we looked at earlier, for Treehouse.

Eric: Yeah. So, something like this would probably cost around, you know, anywhere from 5 to $20,000. And animated videos, we’ve seen it, we’ve seen them outperform the in-person ones, maybe twice. And in this scenario, this is the only video they came across. So, if it worked for them, if they tested it, it works. But I would still recommend testing like a real life sample.

Andrew: Wow, I wouldn’t have expected that a video like this, just plain animation is, you say 5 to 20,000?

Eric: Yes.

Andrew: So, here’s the thing. When it comes to Google Ads, somebody can experiment for 400 bucks and get a sense of whether it’s right or not. When it comes to Facebook, even less, I think, and get a good response. Maybe that’s one of the barriers to YouTube. That it does cost a few thousand bucks for a creative, and then, if it doesn’t work out, you don’t know, maybe the creative stinks. Do you and spend another 5,000 to get a new creative. Or maybe it’s just that the platform isn’t right for you.

Eric: Yeah. So, the thing I always like to say about YouTube is, it’s something that you want to test after you’ve exhausted perhaps, a Facebook or a Google AdWord. It’s like you mentioned. There’s a barrier to entry. And I think that’s the sexy thing about it. Because, with Facebook and Google AdWords in the past, once people started finding out about it, it became super saturated. This is one thing that has not become saturated yet. So, it’s a good time to get in on it right now.

I like the barrier to entry, because it keeps people on, the price barrier keeps people, it’s much harder of a test. We’ll just leave like that. That makes it easier for people that have, really figured out YouTube to… they have a little longer before it becomes super saturated. And, the $5000 to $20,000 number, that’s probably something that’s made in America. But, one trick that I’ll say is you can go look offshore. There are companies, in perhaps Singapore that you can look at to make great animated videos. And, they might cost like, $2,500. So, you can find discounts around, you’ve just got to shop around and look.

Andrew: Can we use a program like Screenflow or Camtasia, and create a quick test, and see if that works? And assume that… well, actually, can we get a decent response if we try a test like that? Or is it just not worth it?

Eric: Possible. Possible. Have it tested. It’s definitely worth it. I mean, you might… Let’s say you do this. I mean, you might make a screencast video, and you might say, “I want to allocate $500 to 1,000 to it”. That might be worth doing, just to see if you get traction or not. I think so. But, we haven’t tested screen full type videos before. I haven’t seen something like that. So, maybe it is worth a test.

Andrew: Okay. All right. But, in your experience, it’s the more polished videos that work. Something like this. Did you, did you guys try anything when you worked at… no, Treehouse has never tried anything that’s less than fully polished.

Eric: Oh, yeah. Totally. I mean, I used to go to them and the video team, we had an in-house video team. I’d be like, “Hey, guys, well, I’m thinking this, this and this,” and they’d just go crazy. They’d actually do like three or four videos at once. And we tried a quote-unquote “hot girl video”. And it’s all about the niche. My feedback for that one is we tried the hot girl video, making like an iPhone app or something like that. And it really didn’t resonate with the audience. The engagement was a little lower. And I hope Brian doesn’t kill me for sharing this. But, it’s because hot girl and building iPhone apps don’t exactly overlap. There’s just like a disconnect there. So, you’ve got to make sure you’re flowing with your audience.

Andrew: I have seen products, obviously, that don’t overlap with hot girls. They’ll use hot girls and get clicks. Right? So, maybe there is a more universal message there about it not working, on YouTube anyway. Back in the early days of Facebook, I saw people use that a lot. It was just a sure way of getting clicks.

Eric: Oh, yeah. You would get crazy click-through, yeah.

Andrew: Right? I remember it was, I think it was Groupon that used to use them obsessively.

Eric: Yep.

Andrew: Okay. On to the big board here, next big idea is to not let the bidding trick us. You want to customize your bid format. Help me avoid getting tricked. What are you talking about here?

Eric: Yeah. So, basically… I wish I could share my screen here. But, what you can do, when you’re bidding for YouTube videos, you want to make sure that when you’re bidding, there’s a little button that you have to click. So, you click on Targets, there’s a tab there. You click on Targets and then it’ll say, “What’s the maximum you’re willing to bid for this view, per view?” But it only gives you one box to bid on. But Google has actually hidden another box that allows you to customize bids per format. And what that means is you can break everything out, and you can bid on the ad formats that you actually care about. So, if I only care about instream ads, what–

Andrew: Oh, here. I think I’ve got a screenshot of it. Is this what you’re talking about? This right here?

Eric: That is it.

Andrew: Yeah.

Eric: Okay. So, you see that blue link right there? It says, “Return to one bid for all formats.” When you click that, it actually brings everything into one sentence. So, a lot of people tend to gloss over this. And these two options raise the in-display, and in-stream. They’re actually not available when you get to this screen. You actually have to click that link to break it out. And that’s the key. If you’re only bidding on the max cost per view across the board, you’re not going to maximize the number of views you can get per day.

But, if you care more about instream, you should bid higher for instream and bid lower on in-display. You’re going to have to tweak it a little bit. And once you look at it over like a week or so, you get something, you get like a happy medium. That’s when you can get the most views possible.

Andrew: I see. And that’s the trick that you’re talking about. They try to get you to pay one price for all their different products. You say, “No, if what you really want is instream,” and Eric, you’re telling us that we do want instream, “then pay for just instream and not for the other things”.

Eric: Correct.

Andrew: Not. Okay. What’s this screenshot?

Eric: Let’s see.

Andrew: “Max cost.” Oh, I guess it’s the same thing.

Eric: It’s more or less the same.

Andrew: This is the exact same thing actually without the box around it.

Eric: Yep.

Andrew: There we go. All right. Do you see people make that mistake a lot? Have your clients made that mistake?

Eric: They have, actually. They’d be like, “Hey, we’ve tried YouTube. It just doesn’t work for us.” And this is probably the key takeaway here. If you want to make YouTube work for you, when you’re having trouble getting more views, and you’re like, “This video doesn’t work and people don’t care about our video,” try going into this and make some adjustments and see what happens over the next few days. And, you’ll see.

Andrew: At the top of this session I said that you work with clients like Intuit and, I forget which are the other ones, they were. But they’re big names. Do you work with smaller clients too?

Eric: We do. We do work with probably tech startups that have raised like a series A. They’re more, trying to hit that growth trajectory. In some cases we work with small to medium size businesses. But the main thing for us is that we have to believe in what you’re doing. And also, it has to be a good fit. If we don’t think we can knock it out of the park with you, we’ll be very direct and that’s the thing for us. I think we’ve kind of brought over that startup culture. We operate much like a startup, like a technology startup. So, that’s how we behave. And then, yeah, we’re not here to just take on whoever we can. We’re actually very selective.

Andrew: One of the things that I regret about with Mixergy is I had an opportunity to work with you guys when you were just getting started, back when the founders were there and you hadn’t yet signed up to be CEO. And at the time, they said, “Hey, we can help you increase your sales. We can help you understand what your customers want a little more and a few other things,” and I said, “No, I don’t want to increase my sales, I’d like to understand my customers better, but if the goal is to increase sales, I’m happy where I am.” And I didn’t take that opportunity.

And then, I saw you guys work with other clients and I saw what you guys did, the beautiful sales pages, the clear explanation of what the product is, and all the marketing that then feeds into that. It was spectacular. Give me a sense now of what size companies you work with. Who out there should understand that they have an opportunity to work with you and not make the mistake that I made.

Eric: Yeah. Really the ideal, I mean, we would have been happy to work with you. I think we’ve worked with Ramit Sethi in the past. This is like before I came on, actually. I think…

Andrew: It was around the same time, dude. There, your guys were talking to both me, him, and five other people and it was, Neil Patel, who was an advisor who was really helpful in saying, “Hey, guys, my friend’s just starting this company, you should be a part of it.” I said, “I don’t want new sales.”

Eric: Yeah. I mean, ultimately, I definitely believe in what we’re doing, what Ramit’s doing. We have worked with some quote-unquote “other people,” other experts as well. But mostly who we try to work with would be companies that have more than 50 employees. And 50 to 200 is kind of the sweet spot. We do make exceptions every now and then. It’s like, “Wow, these guys are really doing something cool, and the growth trajectory is good.” We’ll make exceptions if we know we can do a damn good job.

Andrew: I see. Wow. I guess that was always the goal, 50 to 200. It was just, how do we get some people on board who have big names, who are also respected by our potential customers.

Eric: Right. Anyone that has, I think that anyone that’s watching this, that has like an agency or service-based business, I think, you want to set some type of ideal client profile. But at the same time, you’ve got to money to put food on the table. So, it’s okay to make exceptions every now and then, but, you want to go for the goal of having the clients that you want to work with.

Andrew: Okay. All right. I was getting a sense of it, because, even though you didn’t said it at the top when we started. I asked you what your goal was, and you said, “Hey, I just want to help people, I want them to get results.” I know anyone who runs an agency is also saying, “Well, there’s an audience here of entrepreneurs I want to, I want them to understand about what my business is.” And I’ve got a sense of who you’re looking for. Hopefully, there’ll be some connections with the audience. Let’s go back to the big board. And our main goal here is to make sure people can run a profitable YouTube ad campaign. And the next big idea is to define your target groups. What does that mean?

Eric: Okay. So, for example, let’s say I’m an online shoe store, and I’m selling red shoes, I have blue shoes. I might have high heel shoes. If anyone, if you guys have ever run like a Google Display campaign, the way you should set these up is to have these keyword groups broken out. So, if I’m doing a keyword based targeting, which means, I want to target videos that are focused on shoes, I want to make sure that I have a group for blue shoes. So, it might be, “blue shoes, buy blue shoes, blue shoes online.” Whatever it is, I’ll have like a group for that, and I’ll do the same thing for the other groups as well.

But you don’t want to lump everything in into one group of keywords otherwise, Google is not going to be able to figure out how place your video. And they’re actually pretty good at placing it. And then, my one bit of other advice would be, if you’re making a keyword group, you want to have anywhere from 10 to 20 keywords. No more than that. You do some keyword research and then you figure out how to break them out. If you’re teaching people how to do HTML, CSS, whatever you want to break those out to, or if–

Andrew: Let me make sure I’m understanding this. If I’m running a training program that teaches people how to code and I want to target videos that are related to HTML and videos that are related to CSS, you are saying to me, don’t put those in one group, have a different group for HTML where you’re targeting videos that include HTML, and others for CSS. Why? Isn’t it with AdWords that you do that, so that you can create a different message for someone who just searched for the phrase “HTML” and a different message for someone who searched for CSS, and a different one for others? But with video you can’t do that.

Eric: So, I think what you’re referring to is more like, if you’re searching in YouTube, you want something to pop up. What I’m referring to is you’re actually getting it placed. So, let’s go to the HTML example. So, HTML tutorial, HTML guide, and I just have this list of 20 keywords, right? And I’ve done the research, these drive volume, and Google’s like, “Okay, I understand where these videos should be placed.” So, Google’s going to go out there and look for videos that talk about HTML, that talk about web development, whatever’s related to this, and it’s going to place them there. Versus, if I’m doing an HTML video, I don’t want it to show up in like, “Learn Ruby on Rails” type of stuff, because it’s definitely more advanced, right? That’s way down there. I want it to be somewhere relevant.

So, that’s why I’m letting Google do this. And, what you do afterwards is as you continue to optimize, it’s just an optimization game. You will go in, and you will look at the placements that don’t make any sense. Google is good, but they’re not perfect. So, you’ve got to eliminate placements that don’t work. That way, you’re going to save money and drive more conversions.

Andrew: I see. It’s not so that you can create a different message, it’s just so that you can target the right person. And you then can look back at your data and see which group was more profitable and which one was just unprofitable. Is that right?

Eric: That’s correct. Yes.

Andrew: All right. And this is where we would do that? I’ll bring up my screen. Right there. You want us to look for that section that says “Targets.”

Eric: That’s correct.

Andrew: All right. Cool. Back to the big board. Wait. There we go, I’ll select it right now. Make sure to segment. Make sure to segment your campaign settings. Tell me about that.

Eric: Yeah. So, this is kind of the same concept. You want to make sure you’re segmenting things out. I would say, one other thing we’ve learned with YouTube advertising is you don’t need to target U.S. based or English speaking companies. Countries, not companies. You can also, you might have the U.S., you might have the U.K., you might have Australia. But at the same time, don’t rule out International. If you can sell internationally, don’t rule out Singapore, India, might be something that’s worth it. There’s these other countries that might be worth targeting, and I’ll tell you what, the views are actually cheaper in these other countries. And you might get good conversions. We’ve tried doing international for a few clients and it’s actually worked out.

But the key thing is you want to segment U.S. out, you want to segment International out, you want to segment if you’re doing like, red shoes, blue shoes, whatever. You want to segment everything out. So, when you’re actually going in to look at the campaigns, you can more easily break out what’s going wrong with it. If you have everything broken in together, it’s much harder to pinpoint the issues that are going on with that specific campaign.

Andrew: Here’s where you do that. Boy, this is going to be a little hard to show on the screen. I’ll just have it cover the whole screen. There it is. Right?

Eric: This is, yeah, this is when you’re first starting up, when you’re setting up the campaign in terms of countries you want to pick and things like that. This is definitely one of the things you need to do segment correctly.

Andrew: Have you made this mistake, of not doing it?

Eric: Mm-hmm.

Andrew: What happened?

Eric: It’s terrible. It’s like you spend all this money, you get very high cost per acquisitions numbers, and you’re looking like a total idiot at the same time. Yet, you have no way of figuring out what is wrong, because everything is so jumbled in together, it’s so disorganized. And I can’t stress this enough, if you’re doing any type of Google AdWords stuff, you have to have it organized. That’s the key thing. Otherwise, you won’t be able to figure anything out.

Andrew: All right. Back to the big board. Let’s see. I’ll bring it up. There it is. Next one is, you don’t want us to half-ass it. This is something I touched on earlier. You say, “Get high quality video.” You really like Sandwich’s videos. He’s really hard to work with, though. Sandwich is the name of the production company, Sandwich Video. He goes by the name Sandwich, right? The creator. He turns a–

Eric: Is he really hard to work with?

Andrew: Hard to get a hold of, because everybody works with him.

Eric: Yeah.

Andrew: Within a few months, he sold, he was doing a video for one company that does the electric credit card, what’s it called? Coin. The electric credit card that stores all your other credit cards together, so you only need to carry this thing. And then, a few months after that, he created something that said, “Well, you don’t want to have a single credit card number, you want to have a credit card that gives you tons of disposable credit cards. Here’s a new startup that does that.” Basically, he’s being used by everybody, because he’s so freaking good.

Eric: That’s true. I’ll tell you what, I mean, I think his videos, they start at $100,000.

Andrew: Yeah. Right. And he also wants to vet you to make sure that you’re the right fit. And I get it, right? Someone raises a lot of money, and their whole business is based on whether people pay for a Kickstarter campaign or not, and whether investors buy into it or not. His videos will persuade people to buy, to invest, to care, to tweet. What if you can’t? What if you can’t whole-ass it and get him? What else, what else can you do?

Eric: If you can’t whole-ass it, you’ve got to be, I hate using the word scrappy, but that’s really what it is. You’ve got to be able to look into, I mentioned earlier, looking at other countries to see if they can. Perhaps you start with an animated video first. Maybe, granted, it might not convert well, but maybe it will be a start to getting traction. Maybe you want to go to your boss and say, “Hey, let’s start with a low budget video first, let’s get traction, let’s aim for these goals.” If you can hit those goals, then you can start to get a little more aggressive. Then, you can bring in the heavy artillery later, and then start doing some live videos. Then, you start getting better and better, and then you go all in, once you have buy in from your team.

Andrew: All right, fair enough. Here’s the video that I talked about earlier from him. This is the one where he’s talking about how you want to cut up your credit cards because he’s going to give you a new credit card that has tons of numbers. This is really well done. I like his casual style and at the same time polished feel of the video. Wow, 100,000.

Eric: Yep.

Andrew: All right. Back to the big board, here’s the final point that we’re going to be talking about, which is to look for examples on YouTube. What do you look for when you’re doing that kind of research?

Eric: Yeah. So, I might, for me, I might look for companies that I really like. So, you mentioned, there’s Coin in there. I think he’s done some videos for other popular companies, like Airbnb as well. I’ll just look at what they’re doing.

Andrew: Yeah, here it is, this is listed. I don’t want to obsess on him. Here’s some of his other ones. He’s done Groupon, he’s done 1Password, he’s done eBay, Zero. Tons. Yeah, so.

Eric: What I really like to do, I mean, if let’s say I’m brainstorming for a client, I want to look for people that are in the similar niche. Maybe they’re selling baby carriers. I want to see what other people are doing. Maybe their competitors, their direct competitors aren’t doing anything, but maybe you can look into other baby products to see what people are doing, what’s resonating, right? Because, ultimately, especially if we’re working with a client, we’re not 100% sure what’s going to resonate, so we need to see what’s out there first of all. How are people engaging? Sometimes you can look for a video and you can see how many likes it has, how many dislikes it has, just get an idea of what the overall sentiment is.

Andrew: How can you tell which one is an ad?

Eric: So, sometimes you can just Google, let’s go back to the Treehouse example. You can just Google like “Treehouse ad.” Another example is Neil Patel’s company, Crazy Egg. You can just put it like, “Crazy Egg video ad.” I’m not sure–

Andrew: When you say, within Google you’re saying we should be searching–

Eric: You can search it within Google, or you can search it within YouTube.

Andrew: Let’s try it right now. So, back to the browser. How would I search here? Would I do, “Crazy Egg ad,” if I want to see what their ad is? Oh, is this their ad? Crazy Egg explainer video?

Eric: Yep.

Andrew: Okay, so this is how I get to see if I’m competing with them on heat maps, how they’re advertising their heat maps. Got it.

Eric: And you get good ideas too. And I would also say, so you can actually see who did their video there. That’s the other hack. You’re always–

Andrew: Oh, Demo Duck did for them.

Eric: Yep. Exactly.

Andrew: I see. And so we can contact Demo Duck and say, “I like what you did for Crazy Egg, can I hire you to do it for us too?”

Eric: Exactly.

Andrew: And is the only way that I know that it’s really an ad, is it because they include the word “ad” somewhere in their description?

Eric: No, I mean, it doesn’t even include it here. I mean, this is, look at this one. One has 8 million views. Look at how many likes it has. It doesn’t say ad anywhere.

Andrew: Yeah, the word ad is not included anywhere in here.

Eric: Nope.

Andrew: I see, so it’s not something they can control. They can’t stop using the word ad and keeping me from doing a search, research like this.

Eric: Yes.

Andrew: Wow, they’ve got 6.8 million views of this ad. That’s what happens when you hit it big with a YouTube ad?

Eric: That’s correct.

Andrew: Wow. And that’s the other benefit that I’ve heard. That it increases the number of views on your video, which then gets more people to watch it organically. Is that right?

Eric: Yeah, that’s correct. And you also get, I mean, you freaking get subscribes too. That’s the added benefit to your channel.

Andrew: Then more people get end up subscribing and seeing what else you come out with. Let’s see how many subscribers Treehouse has. I’m looking on this computer here. They have 52,000.

Eric: It’s not bad.

Andrew: No. Not at all. All right. So, there it is. Focus on instream ads, have a polished video. You might be able to try, but you haven’t, Eric, tried using just Screenflow or Camtasia, and tried a cheapo, cheaper video. See what other people are doing. Don’t bid stupidly. Break up the bids. I’m looking at the board here. Define your target group so that if that doesn’t work out you know why it didn’t. If it did work out, you know which segment really worked out well and emphasize that. And that’s also make sure to segment. And then, finally, look at your competitors, see what’s working for them, copy their best ideas to the best of your ability. How does that sound?

Eric: Sounds great.

Andrew: All right. Aces. The company is called Single Grain. Can I tell people also that you do a podcast, that you do interviews too?

Eric: Absolutely.

Andrew: All right, this is the agency. You guys do really good work. And where is it? This is your podcast?

Eric: That is correct.

Andrew: What kind of people do you interview there?

Eric: Well, you’re going to be on the show soon.

Andrew: I am. January.

Eric: We’ve got great people. I mean, we have Neil Patel, from Crazy Egg. Brian Carson from your show’s also on. Jason Lemkin from Adobe EchoSign. So, a lot of different people. A lot of different tech people too. And I also do a, from Tuesdays through Fridays it’s just me on the show. We’re doing like a quick Q&A, that’s like anywhere from 5 to 10 minutes. And the response from that has been pretty good too.

Andrew: And what’s the focus?

Eric: The focus is anything from business to personal growth and productivity. So, anything that’s… The one reason I started this was, I didn’t really have a goal behind it in the beginning. I just wanted kind of pay it forward, share my experiences. And eventually it started parleying or snowballing into me, and meeting other cool people, and just learning from them and whatever I learned from this I can translate it over to my personal and business life too. So, it’s been great.

Andrew: All right. Thank you so much for doing this. Thank you all for being a part of it. If you’ve got anything of value, I always say, and frankly, when we started out, Eric told me his goal wasn’t to get new customers, wasn’t to get new viewers of his podcast. It was just to give people at least one thing that they could use. One golden… What did you call it?

Eric: Golden nugget.

Andrew: Golden nugget, like the hotel. One golden nugget for people. And so, if you’re out there, if you heard us and you have anything especially useful, let them know. What’s a good way for them to connect with you and tell you?

Eric: Yeah. My Twitter is @Ericosiu, so there’s a little “O” in the middle. And you can email me via

Andrew: Cool. Thank you and thank you all for being a part of it. Bye, everyone.

Eric: Thank you.


Master Class:
How to increase conversion
(Through research)
Taught by Peep Laja of ConversionXL

Master Class: Conversion through Research

Report Bugs


Andrew: This session is about how research can increase your conversions. The session is lead by Peep Laja. He is the founder of Markitekt, a firm that helps companies make more money through conversion optimization. He also famously blogs about conversion optimization on his site, ConversionXL. Peep, thanks for teaching us here.Peep: Thanks for having me.Andrew: I want to set up what we’re going to learn by showing an example of what can be done. That example comes from a site that you were working with, that was actually doing okay. You said to me before we started recording, “Okay is actually a bigger problem than poorly done or badly done with big mistakes.” Why is okay a problem?Peep: If you have a site that sucks [??] terrible, the design is amateur and it has all of these problems, it’s easy to find and fix those problems. You can just look at the site and say, “Hey, this sucks, that sucks, and this sucks.” and it’s not that hard. What is hard is taking a good site already making money, with no obvious no-brainers, and then improving it. That is hard work.

Andrew: What did you to do to this site that allowed you to grow their sales like this? Let’s bring up the numbers. I know this is a lot of data for people to see on their screen, but the big picture is that users went down but the conversion rate increased significantly. It’s a 45% conversion rate increase. Revenue shot up about 30% and so on. Can you give me an overview of how you were able to get it? Then in this session we’re going to go step-by-step over the process that you’ve taken, and that others who are watching us can take. What did you do to get the numbers that we looked at?

Peep: We used a multi-step process. We knew this site must have problems, we just don’t know what they are. We need to be data driven, figure out what we think is wrong with it, then see if our hunches are true. We have quantitative data to evaluate and reevaluate our hypothesis once we have a list of maybe a hundred or two hundred items wrong with this site. There were so many problems that we identified. For instance, the site was not responsive even though the mobile traffic was like 20%. Mobile experience was terrible. We decided to completely redesign the site using the data. We kept what was working and we changed what was not working. The end result was 30% more transactions with less traffic.

Andrew: Peep, you did one before we started, that most people want to just do a complete redesign. They look at their site, they learn a whole lot, and they realize, “My site is junky, I missed out on all these things that everyone else has learned over the last few months and years. I’m going to redesign it using everything I learned.” You said, “Don’t do that!” Why not?

Peep: Most radical redesign is a bad idea. The reason is that if you change everything at once, inevitably some things will get better, but some things will get worse. They cancel each other out and you don’t know what’s what. What made it better? What made it worse? You see it all of the time in news, where a major e commerce site has a million dollar redesign, but revenue per visitor is down 30%. They then roll back to the old site after spending all that money and all the time. A better alternative is to just improve your site one specific item at a time through proper scientific…

Andrew: Is that what you did on this site whose data we were looking at?

Peep: No. In their case, improving the site by one item at a time would have taken a year. That’s too slow. Since there were so many severe problems we decided to redesign everything. However, we did not redesign it based on clients personal preferences or designers creative ideas. Actually, we did not even include a designer until we had full wire frames done, based on the research data, based on talking to the users, and based on analytics data. Then we finally brought in the designer and said, “here are the fully detailed wire frames. Make it look awesome.”

Andrew: We’re going to show how that process plays out and how other people can use it. Can you say publicly whose stats that these are that we see up on my screen now?

Peep: It’s a national e commerce site called National Allergy.

Andrew: National Allergy. Let’s go over to the big board and take a look at the big steps that we’re going to be taking to give our audience this kind of result. And the first one is, well you’re saying, “Look, your opinion doesn’t matter.” But you also, Peep, are saying that you’re opinion doesn’t matter either. And in fact,

Peep: Mm-hmm.

Andrew: As much experience as you had doing this, you keep getting surprised by what works and what doesn’t. Let’s take a look at a version…

Peep: All the time.

Andrew: …of your site.

Peep: Mm-hmm.

Andrew: This is your site. I clearly, taking a look at this, can say, “This makes sense. I could see why conversions would be high.” You’ve got the box asking for an email address. You have the “share” buttons. You have clear description of what’s coming up and talk to me about why you thought this would work.

Peep: When I published the book on Amazon, and I did some research about the name, for the name of the book and I named the book “How to Build Web Sites That Sell.”

Andrew: Mm-hmm.

Peep: And I thought, “Hey since, you know, I did this study on the name of the book, I’ll use this same name here ’cause I know it works.” But of course, typically you want to have, you know, some more copies, some bullet points with benefits, some sub headline, an [??] offer, show social proof with a light button and of course…

Andrew: Ah.

Peep: …I want to have…

Andrew: So you did add that. I see bullet points right there in the center with those green check marks next to them. Yep.

Peep: Yep and then on the side, I had the tweets and the likes and all that stuff, so people would not feel that they’re the only idiots using this site.

Andrew: Yeah.

Peep: And I said, “Ah, that’s great!” But then I tested it. Because when I looked at the data of what people do on this page, the conversion rate was about five per cent for that opt in box which I wanted to be more. And when I looked at the scroll map, actually a lot of people were not really scrolling for further down and nobody was clicking on the social shares.

So, if it’s not motivation, it’s friction. That’s what I thought. So, how about I get rid of the social share? How about I get rid of most of the copy? Make the page narrower, you know, less tall. And I…

Andrew: [??] work with that?

Peep: I had a version before where I even had a “latest blog article excerpt here”, which I also removed. And then, you can see that’s the next iteration and this doubled the conversions on my home page. So, right now it’s converting at around ten per cent. So you only see a tag line, head line, and an offer. That’s it.

Andrew: All right, and you keep wanting us to think this way. It’s not that we should remove Facebook buttons. It’s, that’s not the big message here. The big message is, “You don’t know and what you think doesn’t matter, it’s only a matter of testing.” And everything.

Peep: Right. [??] I have run so many A/B tests and when I have to predict which A/B test, which variation will win, I get it right maybe 60, 70 per cent of time, which is only slightly better than flipping a coin.

Andrew: And what’s shocking to me about that is that you are the guy that other people turn to when they want to learn about optimization, and when they want to hire somebody…

Peep: Right.

Andrew: …to fix their sites conversion and if you can’t do it, there’s no nope for the rest of us. We have to test, yes.

Peep: So the point is, the conversion optimization is not a library of layouts that always work. If you think conversion optimization is tactics, “Do this, this works. Don’t do this, this never works.”

You’re wrong. Conversion optimization is a repeatable, systematic process. So, it’s about knowing how to use the process that gets you the results, not about what works. So like a site like “WhichTestWon”…

Andrew: Mm-hmm.

Peep: Their test library is useless for your purposes because what worked for that other guy will not work for you.

Andrew: All right, let’s go back to the big board here and the next big point is to, “Conduct experience based assessments of your site.”

Peep: Mm-hmm.

Andrew: And what you mean by this is, the experience, tell me if I’m wrong. The experience that a user is likely to go through, you want us to walk through it like a tourist visiting a foreign city and look around and look for what?

Peep: So, a client brings me in to start working on a new Web site.

Andrew: Mm-hmm.

Peep: And this assessment is the very first thing that I do, always. I walk through the site as their end user, while knowing what is their business objective. So let’s say it’s an e-commerce sight.

So, on the home page, I want to see, you know, “Where am I? What can I do here? Why should I do it?” You know, is it there? And also, the goal of the home page is to get people off the home page.

So, I’m assessing the content of the home page for clarity. Value, like are they communicating a value proposition. Distraction, like if you have these sliders, you know, carousels changing every two seconds. That’s distracting. I will not pay attention to anything else except for the blinking. . .

Andrew: I’m waiting to see what the next slide is going to be.

Moving backgrounds or stuff like that.

Can we take a look at a site through your eyes? Here’s one. This is one of your clients. When you’re going through this with your tourist eyes so to speak what are you looking for?

Peep: First of all I need to know what is it we want to do? What is our business objective? In this case it’s obviously to book a hotel room. We want people to use that widget to find something.

Also a secondary goal is to get people to become Marriott rewards members because rewards members convert many times higher than regular visitors. It’s six seven times more. They don’t do comparison shopping. They are a really profitable segment.

We want to have more rewards members. Knowing these two things I’m starting to go through this page. First thing clarity. Where am I, what can I do here, why should I do it. Well it’s Marriott so it’s different. Most people know Marriott. Maybe it’s OK. There’s no valuable proposition here.

However, Marriott is also not cheap. Why book through Marriott? That information is not here. No, my saying that does not mean that is the truth and they need the text here. What I do here is I write down, “they are not communicating a compelling value proposition.”

They are not giving me a reason to book my stay with Marriott. This is what I call an area of interest. Now I want to go and seek data to either validate or invalidate this claim that they need to communicate the value proposition. I can go test it right away.

Of course I don’t know what the right value proposition should be. I can generate random ideas but random ideas hardly work. That’s one. Number two, looking at the page again I see in the top right corner it says, “Not a member? Join now.” Member of what?

Andrew: Right. Our people going look at that and understand that means join the Marriott rewards program. Frankly are they even going to see that at all. You’re saying. . .

Peep: I see it and why would I click it? Why would I want to join? The same thing as the log-in bar underneath the image they also have join now.

Andrew: We’re looking at right here.

Peep: Nothing is done here to increase my motivation to take action.

Andrew: There it’s hard to see.

Peep: Is it that becoming a rewards member saves 20% off of your next stay? Well that would have value right?

Andrew: Right.

Peep: Well that huge background image there a lovely hotel I assume. That is the most visually dominant thing on this page. We want people to search for a hotel yet the picture is bigger. Is it a distraction? It’s possibly a distraction. I’m going to start to look at the orange couches. I write down, “the image is a possible distraction.”

Maybe if the search was bigger it would dominate over other things and more people would perform a search.

Andrew: Okay. It’s just going through and saying What is their goal primary and secondary? What are the potential obstacles to getting to that goal? You just look at it with fresh eyes and see not what they are but what you think they might be. You don’t walk away saying that little button is obviously a problem we should make it bigger. You walk away saying here’s an issue that we can examine later with data.

Peep: I’m identifying areas of interest. That review of the page is also very systematic. It’s not about this sucks and this sucks it’s about clarity, value, motivation, distraction and friction. If we want people to action (a) we want to increase their motivation for doing that and we want to reduce friction meaning make it easier to take action.

It’s a systematic process and it’s best with multiple people, not just you because it’s kind of a brainstorming thing. More eyes see more things.

Andrew: All right. Let’s go back to the big board here. Next thing we want to be aware of is to gather qualitative data using surveys. I’ve got one of your surveys here. Here it is. Let me open it up. Bringing back our web browser here.

Peep: The survey is a great way to get data for some of our findings. Excuse me. So for instance we want people to book hotel rooms. What is it that matters to them the most when it comes to booking hotel rooms? Is it how beautiful the room is? Is it the price? Is it something else? We don’t know. So we want to find out what are the buttons that we can push to get them to book more hotel space or what’s keeping them? A large portion of people come to the page and they leave without booking the room. Why? What’s holding them back? So again with the survey we can figure out what are some of those obstacles.

Andrew: Okay. And do you want us to just put a list of obstacles on maybe in radio boxes on a list so people can select the ones that matter the most to them?

Peep: You would think it would be so easy. The problem with that is that you don’t know what the problem is so if you create a bunch of radio boxes, buttons, or check boxes, you are not opening yourself up to new possible problems that they might be experiencing. So I always do only open-ended questions. Voice of the customer. So when I ask the question, “What made you almost not book the hotel room?” I want to see what they write. Or “What matters to you for booking a hotel room, when you’re booking a hotel room? What do you pay attention to?” I want to see their specific wording because that wording I can use as copy writing on the page itself. And if I will ask a stupid . . .

Andrew: All right. So let’s, let’s do. . . Oh, sorry. I was just going to say let’s take a look at it on one of your surveys.

Peep: Yeah. Yeah.

Andrew: I’m opening up a browser again. What system do you use to create these surveys for Marriott?

Peep: This is Typeform. So mostly I use Typeform just because they’re, it’s beautiful.

Andrew: Pretty.

Peep: Yes.

Andrew: Typeform, for anyone who’s out there who wants to use it. And so we hit enter or click the start button and I can see it says, “Tell us about yourself.” I’m zooming in a bit. Then “What made you choose to book your hotel room? What matters . . . ”

Peep: So this survey goes out to people who recently booked the hotel stay. So these are actual paying customers. So we know that this is our target audience because they actually spend money. So we survey them when they still freshly remember their booking experience but before they actually stay at the hotel so their hotel stay experience would not cloud the website experience.

Andrew: Ah. Okay. And I see here, “What hesitations did you have before finalizing your booking on Marriott? Did you have any room booking questions that you couldn’t find answers to on the site?” Do people actually fill out surveys like this?

Peep: A typical response, well we always incentivize, so everybody who fills out the survey gets something.

Andrew: I see.

Peep: So what it is depends on the client. It can be money. Money can be of course expensive. It’s easier to give coupons or you know, something cheap but valuable.

Andrew: I see, that doesn’t cost money. . .

Peep: And typically we get a response. . .

Andrew: . . . but does have a big value for the audience.

Peep: Exactly right. So for many companies they can give away like free eBooks or downloadables or free month of their software, something that doesn’t cost a huge amount of money but is valuable to the user. So we always incentivize people. We want to get a minimum of 100 responses. Otherwise, you know, the sample size is not big enough and one voice can become too dominant. We also do not want more than 250 because if you have more than 250 open ended responses it takes huge amount of time to go through them to and to analyze the responses. And the insight, the extra insight that you get is not really there. I mean it’s minimal. So we want 100 to 250 responses. Usually we need, if we want 100 responses we need to e-mail at least 500 people.

Andrew: That’s not bad, 20%.

Peep: Something like that, yeah.

Andrew: But I guess they’re fresh. . .

Peep: So it’s not like your regular e-mail list where it has a bunch of freeloaders on it. These are people who paid you money. So they have a relationship with you. So they’re, you know, they feel closer to your brand. So 10-20% response rate is typical.

Andrew: All right. Let’s go back to the big board because there’s so many other ways to learn from our customers and to research what they’re looking for and what they can’t find.

Peep: With qualitative data, for instance, we had a client called [??] where we wanted to find out what is the main problem why they are not buying stuff and analytics data showed us huge drop of rates, we couldn’t figure out why, and there selling pool parts, and we learned that Peep: it’s mostly old men, you know renaissance men, do it yourself, and B: the main reason for not buying a pool part was because they didn’t know what was the right part for their pool. Major insight for you know for using, for improving conversion. So you can get such high quality valuable insight out of qualitative surveys that you can’t get from analytics data.

Andrew: You know what? I can see how someone who’s a do-it-yourselfer would be blocked if he can’t figure out what the tool or what the part is the right one for his pool, and it also maybe makes him feel a little bit weak because he came into this process thinking that he can fix the pool and now he can’t even figure out if it’s the right part for the pool.

Peep: Exactly, what kind of a pool pump you know and all that stuff yeah.

Andrew: And Google Analytics wouldn’t tell you. Alright I can see why you’d survey.
On to the Big Board to the next point that I was going to say, which is to review live chat transcripts. Here’s what that looks like on one of your partner sites, one of your client sites excuse me, this is National Allergy. It’s obviously just that box that pops up, we’ve seen it a million times when we go to different sites, it asks users, “Do you have any issues? Do you have any questions?” And these boxes save the chat programs, the chat conversations.

Pep: The exact live chat software does not matter because they’re all pretty much the same. So what matters is that people are usually using live chat to ask pre-sales questions. Like they have a lot of specific questions that’s keeping them from buying something, so those questions are highly valuable. I also like to just talk to support people, but with live chat transcripts I usually get, you know depending on the volume, I want to read through the last 30 day’s worth of chats, and sometimes I also take the live chat transcript and put it in a tool like Wordle, I believe it is, and it just highlights the bigger, the most common words and it gives insight.

So I want to understand with the live chat transcripts what are the most common questions and doubts. So for this analogy one of the most common questions was, “Does this specific, particular product alleviate my specific allergy that I have?” Some are allergic to dust mites, some are allergic to bee pollen, maybe they have asthma you know whatever, whatever the condition is they care about their specific condition.

So once we learn that, when we understood that that’s…that helps people make a purchasing decision, once they know that, “Yes this cures my pain,” or, “Alleviates my problem,” we did two things. Peep: for each product, or most products, where applicable we added on the product, onto the product page we added, “This relieves allergy from dust mites,” for instance, and at the same time we added a thing on to the main menu. Do you have a screenshot of…?

Andrew: Yeah actually, here let’s take a look in the browser, bring up my browser right now. Here is, I was doing the search for it, this is National Allergy, I just looked at all cotton mite proof pillows and of course it says, “Dust mites,” here and you’re clear about what it’s there for, but you also said that there’s some other section, this one.

Pep: So yeah underneath the logo, yeah, there’s a drop down, and it’s automatically open once you go to the homepage, and so here people can just choose their specific condition, and this was when we redesigned it we added it, it wasn’t there before. So we were also like, “Hey are people going to actually use it? Will it make a difference?” And now what we know, because we have analytics data on it, that yes people use it, not as many as we would maybe like. I think that right now the number of all traffic on the site 15% of the traffic uses that functionality, but those who do convert four or five times better than those people who don’t use it. So it makes a huge difference.

So now we’re like, “Yes our hypothesis was correct,” because we had that insight from a live chat transcript.

Now our next task is that okay we know this functionality works not the questions, “How can I get more people to use it?” And this you know requires AB Testing, different ideas…

Andrew: Was the open drop down menu was it from the start that you added it on?

Pep: Mm-hmm.

Andrew: You did, so you said, “All right we can’t just hide it we have to both highlight by putting in a different color,” here’s what it looks like…let’s bring that up, and, “we have to highlight it by putting in a different color, and open up that menu on the homepage because it’s so important.”

Peep: You know a funny thing, we also split tested an orange version, so instead of the light blue we had orange. It really [stirred] up much more, but it actually lowered conversions. Revenue went down. We were like, “What? Is our hypothesis is incorrect?” Then we noticed that actually the amount of people using this widget did not increase. It stayed exactly the same. What it impacted negatively was people who did not use that feature because it was a distraction.

Andrew: I see.

Peep: People who stopped paying attention to the products, the categories, and the stuff, they just looked and was like, “Ah, this annoying orange thing.”

Andrew: Strange how little differences like that have so much impact. Onto the next point which is you suggesting we call customers that match our ideal customer profile. Now you don’t necessarily mean our real customers, just the ones that match our profile. As a result of doing that, here’s a before and after of how National Allergy site looked. Let me zoom in again. This is what it was before the change, and this is what is after. It’s easy to say, “Well, it’s prettier after.” But you want us to notice something else here. What are we looking at?

Peep: We called up these people. These are mostly middle-age and old-school people. That part of National Allergies marketing is that they send this paper catalog to doctor’s offices. If somebody has an allergy condition they go see the doctor and the doctor says, “Hey, you need this allergy relief product from this catalog.” They give them this specific product to buy. We called up a bunch of their customers. I think we interviewed 15, if I’m not mistaken. We had like twenty 30 minute talks about how they would like to buy, and how they buy allergy relief products in general. The biggest competitor for National Allergy is Amazon, because that’s their go-to source, to by anything really. We wanted to understand…

Andrew: Why do people even come to National Allergy when there’s an Amazon?

Peep: Exactly right. We wanted to figure it out. What we found out is that when the doctor told them to buy something, they felt some sort of anxiety that they needed to get the specific thing that the doctor told them to get. When we were asking them, “Hey, did you consider buying the same stuff from Amazon because maybe it seemed cheaper there?” They said, “Well no, the doctor told me this National Allergy is a professional medical website, not like Amazon.” That was interesting. We started to probe that with other people that we interviewed, about this doctor authority, professional, medical, and serious. That inspired the new version of the homepage, where you see the doctor.

Also, it’s where you see the copy there. Underneath the headline it says, “Thousands of doctors are recommending National Allergy to their patients.” We’re using this doctor thing as something that sets National Allergy apart from Amazon and other competitors. This is a serious medical site. If you want an allergy relief solution that actually works, you come to National Allergy.

Andrew: The only way that you were able to find it out was by talking to customers and asking them, “Why would you use a site like this? What troubles did you have with it?”

Peep: Exactly right. Why would you prefer National Allergy to other sites?

Andrew: Should we not talk to our current customers? You’re saying talk to people who are like our ideal customers?

Peep: You want to talk to both. You want to talk to people who actually bought from you, because you want to understand why they bought from you and not the other guy. What made them think that your site is the right site? You want to understand those reasons. So when we interviewed people, ten of the people were actually customers. They had actually purchased products. If you’re talking to ideal customers, nobody’s more ideal than somebody who paid you money.

Andrew: I see. So it’s not that you’re saying, “Talk to people who are like your ideal customer.” You’re saying, “Talk to your customers who match your ideal customer avatar, or talk to others who haven’t bought from you who should be, because they match your ideal customer.” And through that you’ll see why people buy and why they don’t buy. That’s how you ended up with a doctor on the homepage. And with a site that emphasizes the trustworthiness of this site that has medical connections, as opposed to emphasizing free, here this is what you used to emphasize, what they used to emphasize, free shipping on over $50 and the diversity of their collection.

Peep: Right.

Andrew: Right so that…

Peep: So when you have a site like this, which is like most ecommerce sites, they sell products that also other ecommerce sites sell. Like everyone sells Samsung TV’s right? So why should somebody buy from you? So you have two options really, either to be better or to be different and it’s very hard to be better, and it’s not that hard to be different.

Andrew: All right let’s go back to the big board, the next one is to recruit 10 to 15 people who match our target audience and you’re suggesting that we use a site, this is where user comes in for you am I right?

Peep: Exactly, so is just one of the options so you don’t have to use it and you can also do user testing in your office. You get people to your office, sit them down at the computer, because the main idea is that you have your target audience use your site, or the site in question, and comment everything out loud, whatever they’re saying, they’re doing, and you want to give them scenarios, and you want to give them three types of scenarios. A, you want to give them a broad task. So a broad task would be find a pair of pants you like. I’m not telling them what they should click on, and so on, it’s very broad. So then I’m observing how they go about doing it and then commenting everything they say and do.

The second type of task you give them is very highly specific task. So let’s say, “Find dark jeans, Hugo Boss brand, Size 34, under $50,” highly specific, and I want to see how they go about. Are they successful, are they frustrated, is it easy to find something that is highly specific?

And the third type of task is just buy it. So you basically go through the checkout process. I actually take out a credit card and type in the numbers…

Andrew: I see.

Peep: …and buy something.

Andrew: And so we can either do it ourselves by having somebody walk into our office, sit down or sit down at a coffee shop, and watch them but you want us to have them do specific things and talk out loud what they’re thinking as they’re doing it so we can see what’s going on in their minds.

Peep: Exactly right.

Andrew: And if you use…

Peep: And you want to give them just tasks and you don’t want to tell them what to do, you don’t want to ask questions, “So do you think this page is secure?” If they’re not bringing up security it’s not an issue right? So we had a case with a client,, and after surveying Marriott customers and we wanted to understand use case, “Why are you going to stay in Marriott?” A number one use case, “I’m traveling for business, I’m attending a conference, I’m visiting an office in a city,” a different city and usually so they have a specific destination, like a specific reason.

So we created a task for our user test, a scenario, “You’re attending a conference at the United Nations Headquarters in Manhattan, New York, please find two hotels that are closest to that location.” And then we just observed how people go about that task, and so what people did was that they figured out what was the address for United Nations, something-something United Nations Way, or something, and so they typed in the exact address for and once they clicked search the search results come from, came from Abu Dhabi United Arab Emirates.

Andrew: Let’s do that actually. Wait, here we go, bringing up Marriott’s site. If I copy the address, I’ll zoom in here so we can kind of show it. This is what it looks like when you type it in. Then hit find. This time it didn’t do it, weird. We tested it before, but it does show here United Arab Emirates is the location as opposed to United States even though, I think I did it, I’m 90% sure I did it. Let’s do it right here, I pasted it 760 United Nations Plaza, New York, New York, hit and then New York, New York, zip code 10017, and then comma United States, hit find…This time it’s not showing anything but the problem is the same one that we noticed earlier when we tested this, which is it’s asking for, it’s looking in the United Arab Emirates and so you wouldn’t have known that unless you watched someone struggle with it?

Peep: Right, their competitor, Hilton, does not have this problem, it’s easy to find, you can just punch in the street address, and Marriott has this functionality in their advanced search settings somewhere, but this is a problem that we found through user testing. We have, of course, nobody find a client Marriott about it, but you know how it goes in huge organizations change is slow.

Andrew: How long have you been with them?

Peep: It’s about insight.

Andrew: How long have you been with Marriott? Are they a new client?

Peep: We started, we went through this whole conversion research process with them in August and September, and then we…

Andrew: Okay so just a few months ago.

Peep: A few months ago, exactly, and it’s a pretty good site. We actually struggled to find things wrong with it, but you know if you gather a bunch of data and analyze the data you’ll find stuff. So we found 75 issues, some more severe than others, and they implemented some of them, some are being tested, some are things are not implemented, not really up to me but just today I saw an email, or yesterday, in the inbox where they say, “Hey we want to do another round because we changed a bunch of stuff so let’s do more analysis here.” So they were happy with that.

Andrew: The cool thing is this, I had to struggle to find, the first time I searched on Marriott I found the exact same page that we just showed. The second time it was gone because they were AB Testing and I was seeing one of their variations, and so we do see even as you and I are talking and looking at their site that they’re constantly testing. The other thing I noticed is you said that they do how much in sales on their site, roughly?

Peep: Their online volume is $7 billion.

Andrew: So even a small percent, you were saying, a fraction of 1% could be a huge lift for them?

Peep: My god yes. You know I had a chat with their, one of their conversion managers and they said a year ago they installed a Java Script snippet onto their site that slowed the page down enough that the conversions dropped by 0.25% percent and that cost a loss of like $100 million.

Andrew: Wow.

Peep: So scale.

Andrew: Scary and exciting too, because if you could give them even a small lift that you’ve way more than made up for the cost that they’re spending on your firm.

Peep: Yeah.

Andrew: Alright, the pen ultimate point is use web analytics to find out which pages are costing you the most, and there was a company that worked with truckers that had an issue that you uncovered this way.

Peep: Right.

Andrew: What did you do?

Peep: Well with Google Analytics the main thing that you need to find is where are you leaking money. So if you have an ecommerce site you know if people get to the category page are they then, how many are proceeding to the product page? You know maybe that’s where the flow is stuck, or maybe they get to their product page but they’re not adding to the cart, or all your checkout funnel. So you need to find out where are they dropping out and then you figure out why, and again be also specific pages that are causing the problem.

So yeah I had a client, I still do, that is kind of a job service for truck drivers and they had a five step resume creation process, so if you wanted to apply for a trucking job you needed to fill out a form that was on five pages, five step form, huge, huge. So in Google Analytics we saw that in step three massive amounts of people are dropping out. They had filled out two pages worth of information already so they must have been invested, but page three they’re dropping out. We look at the form on page three can’t find a problem. We were suspecting technical problems so we ran cross browser testing, nothing, everything was working.

So at the same time we were using a heat mapping tool that also records user sessions, so we were watching user session replay videos. You can use tools like Inspectlet, or Session Cam, or Click Tail, and so we were, we took three, four hours, and just watched a bunch of videos of users that had dropped out in step three.
So what we noticed was that, first of all there’s a question about your criminal history, and we discovered that a lot of the people have criminal records, and you know many had more than one thing, assault and whatnot, and then they get to a question that says, “Do you have references?” And the form needs three mandatory references.

Andrew: Is what it looked like on the form.

Peep: So nothing complicated just name, relationship, phone number, right? But these people didn’t have references; maybe because they had a criminal history, maybe because they were fired from their previous job, we don’t know that, that we don’t know. But what we found out was that personal reference that they didn’t want to fill out either because they didn’t want to or they didn’t have any. So we told the client “Hey, this is what we found, this is an insight. We think this personal references are a problem.” And the client said, “We can get rid of it. Well, talking about getting rid of stuff, this five step form, you know process is ridiculous.”

And of course you know he’s saying “Well we can’t change it, because this is the requirements of trucking companies, their HR wants to see all of that information,” and so back and forth with the client, and say “Well, why don’t we just get the initial lead in, somebody interested in the job, and then we get the rest of the information later on either through phone or send them an additional form. So we through discussions we ended up with something completely different down the line where we actually instead of a five page funnel, we have a six field form.

Andrew: Here it is.

Peep: So it seems like a no-brainer; yes less form fields, higher conversions, right like everybody knows that [??] talks about it, but the hard thing about this form fields is, it is the business requirement. So if all the data is needed to apply for the job; so how do you remove form fields, because you need the data? So you need to work you know, change something on the back, and change on how you do business or so.

Andrew: And in this case it’s a short form, because it meant they also had to follow-up with phone calls, so it looks like in some ways your costs are going up. But you only understood that, because you understood their overall business.

Peep: Exactly right, yeah.

Andrew: Yeah, so it’s not as easy as just get rid of the fields; life will be good. Get rid of the fields but then you also have to spend some money to follow-up with people, but I guess as you looked at it, you realized it was worth it, but what a simpler process as I look at it.

Peep: And you know, form fields, sometimes you want to add form fields. You want to add friction to the process for instance my website, my agency website we had so many leads coming in, and most were unqualified, could not afford us. So I spent sometimes 30 minutes on the phone, 45 minutes on the phone-call with somebody and we get to the budget finally, and they say “Well I have $800.00” “What? My call with you cost more than that.”

So how do we, because you don’t want to start a conversation with money, because you want to build value first. So a simple change with it, we added a drop-down box with budget options where the lowest budget was I think $5,000.00 or something. So that immediately, overnight eliminated all unqualified leads, because people self qualify.

Andrew: Yeah, here’s what it looks like now, right here. Oh wow, less than a quarter million is one and, so do you take people who spend less than a quarter million? Oh sorry, this is annual revenue. Do you take people who have less than a quarter million in revenue?

Peep: It depends, sometimes we do, and we have multiple forms here, so we have a design form where we actually ask about your budget, or if you want monthly optimization then we’ll ask you about your online revenue, because basically we want to understand if we increase your revenue five percent per month, how much is five percent worth to you? So I want to have my clients get three-four-five times return on what they pay me.

Andrew: All right, final point is, now that we’ve got all these issues, you want us to list them out, categorize them, and rank them. Why do we need to make this list?

Peep: So once you go through all this qualitative-quantitative research process, you will end up with a huge list of issues. So a typical website I have 30 pages full of issues, so now I mean where do we start from? What’s more important and you know, how should we tackle these issues? So first thing you want to do is you want to categorize all the issues.

Some of those issues are instrumentation issues, for instance instrumentation means that something that needs to be measured with analytics, it’s either not being measured. A typical problem let’s say on E-Commerce site is that they’re not measuring at the cart clicks, they’re measuring visits to cart page which is not the same thing. So the issue might be at the cart clicks are not recorded in Google Analytics, that’s an instrumentation issue. Second category is test

So we found an obvious problem with an obvious solution, but you know we know that my opinion does not matter so we need to test it not just change it, so we’ll put in a testing category. Sometimes we know there’s an obvious problem. For instance, people don’t know which part is the right part for their pool right? It’s a problem, but what is the solution to the problem? Now there is no obvious solution there could be many ways to solve the problem, so that type of problem we put into hypothesize category, obvious problem not obvious solution.

Peep: I see.

Andrew: A fourth kind of category is just effing do it. So a no brainer, so you’re font size is eight pixels light gray on gray background, you know people can’t read it. No need to test it just make your font size bigger and darker, right increase contrast. So just do it and the fifth type of issue is investigate.

So we have identified an issue, for instance, conversion rate for Internet Explorer 10 is only to 20% compared to Internet Explorer 11 and 9, why? We don’t know, so there might be some cross browser compatibility issues so a developer needs to go and investigate. So that’s investigate category.

So once we have categorized these issues we know who to send it to. All the instrumentation issues we’ll send it to an analytics guy, or developer. All the test and hypothesize things we’ll send to our optimization team. All the just do it things goes to whoever you know changing stuff on the website, and so you know how to organize the work, and now even if your categories don’t fit into five categories.

Still you might have 30 things in one category, well where do you start? So you want to prioritize each issue from, we usually use five to one ranking, so five means it’s a severe problem costing you money and a huge amount of your traffic is exposed to this problem. So for instance, in Marriott the address search, you know the search is the most prevalent thing, huge amount of visitors exposed to the problem so we’ll probably rank it around four, and also then up to one.

One is the minor usability issue that should get fixed eventually, not a high priority. So an example could be that people on your about page are not finding your, I don’t know, your address. You know maybe they don’t, not too many people have that use case but it should be fixed eventually you know?

So once you have that, and then you should have all these issues in kind of a spreadsheet, we use just Google Doc’s.

Exactly right. So we have an issue and what the issue is, the bucket which is the category, back on why is this an issue, action which is what should we do about the issue, and rating, and you can also add another column here for responsible. So Google Analytics Bounce Rate Info is wrong that’s an instrumentation issue. Well, Susie in the Analytics Department can fix that, or we are not recording free-trial downloads well we should send it to Linda; she’s taking care of all the event tracking for whatever downloads right? So we can add specific people and now we have an action plan.

So when I start, when I have a conversation with start-ups who want to do testing, but don’t know where to begin there number one question is, “What do I test, I don’t know?” Well now you have 30 pages full of stuff to do, you have no question about what to test, but once you go through this research process you, you know you can be confident in your way forward.

Peep: All right and the way to do it is to conduct those experience based assessments to gather those qualitative pieces through surveys, I’m look at the list here. In fact, I might as well just show it up on the screen, and there it is. Look at the chat transcripts, call your customers, get people who are in your target audience, look at analytics, and then once you have that list prioritize, assign, and then get to work.

This has been a real meaty conversation here, but I still want more. Because, there’s something about conversion, especially when it’s explained right by someone who’s done a lot, and I don’t know many people in the world who’ve done more than you and have researched it as well as you do. It’s just fascinating to see what you should do and how much those little tweaks can impact the business. Your business, if anyone wants to check it out, it’s, but I’m going to suggest that they check out the blog first. They can register, they can read your articles, and you’ve got them going back, if I remember right, when did you start 2011?

Andrew: 2011 yeah.

Peep: 2011, and they’re really interesting articles here. It’s so great to have you on here. Is this the best place that I should be sending people to sign up right here with your site?

Andrew: That is right yeah. Conversion XL you know if I may say so myself it is the best conversion blog out there. When I started it I thought everything else is kind of mediocre out there so we work really hard to create awesome content.

Yeah and you keep it really interesting here. That’s Peep, thank you so much for doing this session with me here today.

Peep: Thank you for having me, Andrew.

Andrew: You bet. Thank you all for being a part of it.


Master Class:
How to design for credibility
(So you can reverse engineer beauty)
Taught by David Kadavy of Design for Hackers

Master Class: Design for Credibility

Report Bugs

Master Class Toolbox

Course Cheat Sheet (Coming Soon)


Andrew: This session is about how to build credibility with design. It’s led by David Kadavy. He is the author of “Design for Hackers”. Let’s bring it up on the screen. “Design for Hackers: Reverse Engineering Beauty”. Prior to writing “Design for Hackers”…. Let me bring him up now. David founded the design departments at two silicon valley startups and freelanced for clients including Odesk, PBworks, and Uservoice. My name is Andrew Warner. I’ll be here to help facilitate the conversation. David, thanks for being here.David: Thanks so much for having me. It’s great to be here. I love Mixergy.Andrew: Thanks.David: I’m very excited.Andrew: I’m looking forward to this because, frankly, I am always overwhelmed by design even though I know I need to keep improving it. What I like about you and what people will hopefully see throughout this conversation, you give practical advice for people who aren’t living and breathing design and don’t feel like design nerds. You actually even gave me a quick video showing what we could change on Mixergy. By the time this video is up, all those changes will be up because you make it so accessible.David: That’s great to hear.Andrew: Yeah so people will see the impact by the time this video is up. Let’s talk about some of the problems with design. One of the issues is something that you’ve experienced at an event that you were hosting. You sat next to a lady who said to you, “You know, it’s really important to be in a magazine so you know you’ve made it.” Something to that effect. And you were in a magazine. What did you think as she was saying that?

David: Basically that was at an award show that I was co-organizing. We were all just having drinks. She said that and it really kind of struck me. Being in design school, we’re constantly being told that we should be in these various magazines and that we should be famous designers. That was the thing to strive for and that was something that we did strive for. First print job out of college, I got in a really prestigious design magazine.

It was sort of a strange feeling because I kind of thought this was supposed to be really gratifying, but it just wasn’t. I couldn’t figure out what the thing was. I started to question whether this is what I was really working for. When she said that, it really confirmed in my mind. Yeah, this is what designers want to accomplish when something just doesn’t feel right about that to me.

Andrew: Yeah, I get what you’re saying. Before I talk about what does feel right, the purpose of this conversation and what we’re going to impart to the listener right now. This is how wrong you felt it was. This is something that you created. What were you trying to say here?

David: This was actually the poster for the awards event that I was co-organizing, the one that I was just talking about. Now I can look back on this and realize some of the psychology that was going on in my own brain. I used, sort of a prescription drug theme for the award show. We were using the prescription drug theme for the obsession of winning awards and having prestige and being high designers, while not necessarily creating something that meet business objectives. I can see, looking at that poster, kind of where my head was at that time. I hadn’t yet necessarily come to terms with it yet.

Andrew: So here’s what it’s about. This is BJ Fog.

David: Yeah.

Andrew: What is it about BJ Fog that’s important for us to know before we continue? What’s the study he did?

David: BJ Fog runs the Stanford Persuasive Technology Lab. He did a groundbreaking study where he basically put people in front of websites and said, “Do you trust this site? Do you feel like this site is credible? Why or why not?” Obviously, BJ is a scientist. He didn’t have any preconceived notions about what people were going to say. He went through all of the comments afterwards and found that 46% of the comments, the top category of the comments of why people trusted the site that they saw, found it credible, were related to visual design. People would say things like, “It has this high quality look and feel.” or, “It just looks more credible.”

Notice that they weren’t saying things like, “I really like this particular font or this particular color.” Blue makes you feel calm. It was like an emotional visceral reaction. They were able to pinpoint to the design, but they didn’t necessarily know why.

Andrew: I get that. The way it makes me feel is: they’re not even talking about the substance of the site. They are talking about the design of the site. I know they’re connected but it does kind of feel to me like when I was in high school and I would see girls dating these dopes and I’d go, You’re just dating them because they look good.

David: Yeah.

Andrew: And vice versa, right? And what about me? I don’t look good but there’s substance inside and I kind of feel that way sometimes about some of the content that I create some of the products that I put out online. And one of the reasons why I care about design is because of the study that you’re talking about. People will think that it’s credible or not based on the design. And they’ll decide whether they engage and continue or not and buy or not based on the design. And so with a limitation, me being not a design nerd and me not having a staff of designers and the same thing is true of the person who is listening to us, we still need to acknowledge the reality of the world, which is people do care about this. And so that’s why we’re here and we’re going to talk about how to get there, right?

David: Yeah. Exactly. I mean, we’ve all experienced that ourselves, where we download an iPhone app or something the moment we see it we feel disappointed or unsure and end up deleting it maybe…

Andrew: Yeah.

David: Because it doesn’t look good.

Andrew: Yeah. Or feeling bad for the person who told us, hey, try my app out.

David: Or the opposite of just like, whoa, what’s this?

Andrew: Yes, right.

David: And being struck.

Andrew: Yeah.

David: So hopefully, we can teach people how to illicit that reaction today.

Andrew: All right. Here are some of the topics that we’re going to be talking about. The first one is to eliminate competing elements. Again, some of these are really simple but clear and important to say. Others will be different for people and important guidelines that they could use for the rest of, I was going to say for the rest of their lives, but nothing’s for the rest of your life. But they are long-standing guidelines that will absolutely help you, you’ll see. Here is a site that you looked at when you were a mentor for it was 500 start-ups, right?

David: Yup.

Andrew: Okay. The accelerator.

David: Yes.

Andrew: What did you see here that made you decide to jump in and help out?

David: Yeah this is, first of all Fontacto is basically like Google Voice for Mexico, just to get some background there. And the thing that I noticed here was my first reaction when I see it is like, oh, this is a pretty decent design. You’ve got like a nice font; you’ve got a comfortable color scheme going on. But then you realize, what am I supposed to be looking at here? What is it that they want me to see on this site? What’s the action that they want me to take? And then you realize how much things are competing against each other.

You have this blue band up at the top. You’ve got the headline right below it. And then you’ve got these different sorts of bullet points. And then they have icons next to them and then there’s the illustration to the right. And then underneath all of that finally, we have our call to action. And then there’s testimonials below that.

Andrew: And you know what, and actually, that’s just a screen shot. If we take a look at the actual web site, let me bring that up on the screen here. There’s your site, of course. Let’s go over here. I think it would even move based on where your mouse was.

David: It did, yes.

Andrew: And so you can see how the images change based on what I’m mousing over.

David: It just changed.

Andrew: Okay.

David: So it was very unclear what they were trying to tell you.

Andrew: I see and so there, here you’re saying there were a lot of competing elements. You ended up moving them towards this. And I’ll bring that up on the screen. Actually, this is what the site looks like right now.

David: Yeah, now it’s, there’s a lot more, it’s a lot clearer. There’s like one main dominant thing which is this image of this person looking at the phone. And then, you can see there’s the call to action right there next to this dominant image that pulls your eye in and then it can very easily go to that call to action.

Andrew: I see the top bar is still there but it’s not a competing element you’re saying because it’s no longer blue. If I were to bring, in fact, here, let’s actually go back to the site.

David: Yeah.

Andrew: Here’s what it looks like now. The top bar is still there.

David: Yeah.

Andrew: You go over to We can see this is what it used to look like. And it was competing in your, you’re saying it’s competing because it’s blue. So people’s attention goes up to the top and that’s no longer true here.

David: Right. I mean notice the real dominant blue is happening on this splash area.

Andrew: Okay

David: Now the fact that it’s blue making it dominate is of course, sort of contextual but most sites for the most part are mostly white right?

Andrew: Mm-hmm.

David: And so when you put something bold and blue on it, then yeah, it stands out.

Andrew: Okay.

David: So if the opposite were true if it was all blue and there was a white band, then obviously that would be the thing that really stood out.

Andrew: All right, so the first thing for us to think about is to get rid of competing elements. What if those elements are important? You know, those bullet points are important. People want to know what the product does. People want to know how it changes their lives. What do we do about that?

David: Well then you actually, that’s when it’s good to step back and really think about who this user is, what they’re looking for, and the flow that you want them to have. What are your goals? What is the flow of everything? And you have to pick your battles there. Maybe those bullet points, if they are important information, are in some place that you direct that user to a different page, where they get a tour or something like that. You need to really simplify the way that you are moving them through the mental path that you want them to take, to be persuaded, and to do the thing you want them to do.

Andrew: Looking at their site and it looks like the bullet points have been moved down here.

David: Yeah.

Andrew: And they are grade-outs. They don’t take attention or overhear.

David: Yeah, you scroll down and then things, you know obviously you can’t see the whole page at once and things aren’t competing so much. You only see a piece at a time. Notice you always kind of see, there’s almost sort of a 1, 2, 3 going on. You got like a most important thing and then secondary importance and then tertiary importance, generally. Because our brains, you know, we can’t…that’s why numbers are…phone numbers or Social Security, credit card numbers…are all chunked in threes and fours. Because our brains, once you get over that, start to get confused.

Andrew: Cool.

David: We have difficulty ranking things.

Andrew: I do love, by the way, how Google does translation automatically and now I can get…because in English I’m just like…Cool, all right.

David: You need help on your Spanish, you know, you can do that.

Andrew: All right, back to the big board. Next big idea is “We Want To Focus On The Invisible Over The Visible.” Before I show screenshots of what you mean by that, can you explain it?

David: Yeah, it sounds like magic or something…you know keep in mind I spoke to 800 people at South by Southwest for an hour about white space.

Andrew: Okay. Did you really?

David: Yeah, I really did. So I’m pretty obsessed with this sort of invisible, these invisible aspects of design. This is a mistake that people run into a lot of times when they are trying to design something is they start to thinking about, “Well am I picking the right font?”, “Am I picking the right colors?”, “I need to have an image here, have some texture. Why isn’t this looking right?” And they start moving things around.

What they don’t realize is it’d all the invisible stuff: the way that the text is aligned says a lot about how things relate to each other, the sizes of elements says a lot, the white space between elements says a lot, the way things are organized, if they are organized on a grid. All these things can do so much to influence your design and that’s the thing that really gives things that clean sort of look that adds that credibility. But that’s the stuff that people overlook because they get distracted by all the visible things.

Andrew: You know what, I think then, let’s take a look at a couple of examples. In fact, before we show what you did with Mixergy, and these are small changes. Let’s take a look though at, how about Google. Right, you gave us a couple of screenshots here that we can see to help us understand your point. What are we looking at on the left and the right?

David: Right, Okay. So you know a couple years ago Google redesigned everything. Everything looks a lot cleaner. Notice on the left-hand size, they basically made the logo as big as they possibly could. On the right-hand side, they made the logo smaller and then they started to actually think about the units that are created by the logo. So you look at the height of the “o”, is pretty much the distance they left above the logo and below the logo to provide space for that logo to breathe. And to provide space for an “I” to be drawn there. Instead of thinking that, “Oh well, just make everything bigger!” they started to think about those invisible things.

Andrew: Okay, I see. By invisible you mean…the visible is the logo. The invisible is the space around it. By emphasizing the invisible, the space around it, we counterintuitively, we draw people’s attention to the logo, to what we want them to notice.

David: Yeah, and not only the space between things but also notice, for example, how the left edge of the “g” lines up with the left edge of the “s” in search. And also the plus which is actually hung out a little bit because the plus sign has a visual weight that’s a little bit lighter. So visually it lines up but it’s not a perfectly, mathematical line-up.

Andrew: Okay.

David: So the alignment of things, like notice also how it lines up with the search bar. All those things are important as well. The alignment in addition to the space in between elements.

Andrew: Here is another example, again from Google. Boy, that’s a little big, let’s go there.

David: Yeah, I love this example. They used to just have all these icons and all of these icons had all these different colors on them. It changes all the time. Now they just have…

Andrew: Just have a list of text. It used to be that in their search results on the left they would show you icons for each type of search you can do. You can use images. You can do a search for videos, news, etc. You would know you were doing a search for images because there was an icon of a camera. Now it’s gone. It does look cleaner, so what are we taking away from this?

David: We’re taking away the simplicity. It can be really important to getting the message across that you want to get. We have so much information on a Google search page. We don’t need to clutter it up with extra things like these icons that are essentially meaningless to our brains.

Andrew: So if I were to take a lesson away from this, is it to see what I can eliminate?

David: Yes. I would say that’s great advice, especially as an exercise if someone is trying to learn how to design. I encourage my students and people that I coach to use just one font. You can use one color of that font. Now, do a layout and see how that goes. It suddenly opens up your brain to all these other factors that aren’t present. If you start with something like that and then you start to say, “Well, I really do need to have a dash of color here.” Or, “I really do need an icon to get this point across.”

Andrew: So start with less and justify adding more, as opposed to adding what you think is important and then see what you can eliminate?

David: Yeah, then if you’re doing a redesign or something, then get rid of stuff.

Andrew: Let’s take a look at one more image here before we get to the… Oh, we actually have a couple more from Google here. This is the complete picture of both of those side by side. It’s easier to see how one looks much more cluttered than the other. The one on the left. You also give us Gmail. What should we be looking at here?

David: Oh wow! Look at the way the Gmail used to be designed. They were being very literal about… There’s a lot of information here that all needs to be separated in certain ways. They’re being kind of heavy-handed with it by putting a big blue box around the inbox. They’ve got heavy lines separating every Email. There’s the bulky check boxes on every single one. I don’t know if you happen to have an image of their newer Gmail design or not, but when you compare the two, that is when you can start to see that things are being lined up.

Andrew: I’m worried about bringing up my own Gmail in case I’ve got something personal. Let me see if I can do image search on Google for Google Gmail inbox. Every one of these is the old Gmail inbox. I don’t know why here [??] weird.

David: Some people prefer it because it’s what they’re used to and they used it for years, so they still use the old one.

Andrew: I don’t see… I’m sure it’s on there. Oh, there. This is one of the newer ones but it has a…You can kind of see it there with the…

David: That’s [??] the spam folder.

Andrew: Here’s another one there that shows… So now we’ve seen now that no longer heavy blues. The part that we’re supposed to pay attention to is just black and white.

David: Right. They’re just using pretty much a white background there to help you focus on the part that you’re supposed to be seeing, which is the Email. You’ve got a lot more simple interface elements going. The boxes are not big three dimensional check boxes, which I feel like they’re kind of left over from…

Andrew: The early days of the Internet.

David: Right. Well, people weren’t as used to the, “don’t make me think” sort of thing, which is still a great book. The people weren’t used to check boxes and things like that. They were [larger] population of people. This is what we call affordance in design. It’s visually expressing that you can click here, or you can drag here. Things like that.

Andrew: Yeah, I see what you mean. That was the old way of looking at things. It was the old way of presenting information, that if you wanted someone know that they could click something it needed to look exactly like a button, or else people who were coming from an offline world online wouldn’t know that this is a button, so it would have to look to like to the button. If you wanted it to be a checkbox you needed to make it somehow very clear that this is a checkbox, not a random square in a page. All right. Let’s look at one more. This is a sampler of what you did on Mixergy. This is what Mixergy looks like at this second right now.

David: Yeah.

Andrew: Here is what your change will make it look like.

David: Yeah.

Andrew: I wish I can show it side-by-side more easily. I think I can. Wait, I think I kind of could. Let me see if I can play with this. This would go right here and now I do another slideshow, yes, let’s do picture-picture slideshow. This will just take a minute. [laughs] Right. Now we have a blank slideshow and in this slideshow you’ll do this and we can move it over to the right and maybe even cut the, crop right, crop left, just a little bit, make it bigger. There. [laughs]

David: Yeah.

Andrew: That will kind of show it.

David: Yes. Perfect.

Andrew: I don’t know if I’d call it perfect, but that’s generous and I appreciate it. [laughs]

David: [laughs] Good.

Andrew: What we can see is in this version, here, actually before needs to always go on the left. Right there. There is a convention that we can pay attention to.

David: [laughs]

Andrew: Pop it up. And now the after can go on the right just like, where is that? No. [laughs] Wait. Come on, after. Oh, I see, I see, I see.

David: Just lower the canvas.

Andrew: There we go. After right there.

David: Well, that’s before.

Andrew: No, is it? Oh yeah, yeah, right. There we go. No.

David: No, you got them switched. I don’t know how that happened.

Andrew: I’m switched again. Wait. Slideshow. Over to the left slideshow. Image. Over to the right image.

David: All right.

Andrew: Well, before and after, now that worked.

David: Perfect. Okay. Now, good. [laughs]

Andrew: [laughs] I’m going to save this so I don’t lose it. That was a lot of work. All right.

David: Yeah.

Andrew: So what are we looking at? What’s the difference?

David: So one thing people are going to notice first of all is that the text is made bigger, but it’s not just made bigger. I’ve actually used what I call a varied scale. It’s a series of text sizes that are built up on a proportion, so 9, 12, 16, 21, 28, 37 are kind of the targets that I go for.

Andrew: Okay.

David: And so that ensures, one, it makes it way easier for me to pick the sizes I’m going to use and it ensures that they have a proportional relationship to them which makes them more attractive to our eyes.

Andrew: Wait, so what you’re saying is where I might just randomly say, maybe not randomly, but I may say, “Look, the headline looks a bit small. Let’s bump it up one. Let’s bump it up another.” You don’t do that, right?

David: Right.

Andrew: You don’t say, “Let’s take it from a 9-point font to a 10-point or maybe an 11.

David: Yeah.

Andrew: What’s the difference? How do you do it instead?

David: I always use the same size scale. So if it needs to be bigger then, if 9 isn’t big enough then I’ll make it 12. There’s no in-between for me there.

Andrew: You don’t go 10 or 11? It’s got to go to 12?

David: I don’t go 10 or 11.

Andrew: Why?

David: Because, one, it simplifies the decisions and It also ensures that things have a proportional relationship to them, so it makes it a lot easier to work with. Another thing is that size is just one of the many factors that you can use to make something look more important or less important. You could always make things bold, you can use different colors, there’s so many different things that you can worry about. This helps eliminate some of the other factors that you can think about. Just [??]

Andrew: Okay. And we’re going to get to some of this later on about learning the rules and seeing the patterns.

David: Yeah.

Andrew: Okay. So what else? So you did include the headline of each post.

David: Yeah.

Andrew: This is from the home page.

David: Yeah, I made the headline bigger. Notice that the space between the lines on the headlines is made smaller because they’re pretty short headlines and they just look awkward, they have too much space in between them in the original one. And then I also, along with making those things bigger I realized well, I need to have a little more generous margin over on the left-hand side between our picture and our headline and the edge of everything. And another thing I did was the metadata words, just posted on November 2014. I made that not only be a size that is along with my varied scale, but I made it all-caps and I spread it out a little bit, used letter spacing.

Andrew: Why did you spread that out? Why couldn’t it be, here, this part, let me, we’re talking about, I get to use all my tools, this.

David: Yes.

Andrew: Why spread it out? It’s so unimportant, the date. I would even get rid of it.

David: Sure. Well, yeah, you could get rid of it. That’s one thing you could do. First thing is I made it all-caps because it’s a different sort of information. Metadata feels different than a headline does. So it feels like it should have a different sort of character and just making it a different color or something doesn’t really have the same effect as making it all-caps.

Andrew: Okay.

David: All-caps feels very metadata. Now, don’t use all-caps for your body copy. That’s obviously not good. That’s screaming. But then when you make it all caps, you only want to do this with all-caps. You don’t want to do it with lower case. It’s one of those type rules. It’s complicated. But with all-caps you can spread it out a little bit and then that gives it sort of a lighter feeling. And yeah, if you feel like metadata isn’t important they could be a step smaller on the scale.

Andrew: Okay. Let me do this. You actually created a video for me walking me through how you did this.

David: I did. Yes.

Andrew: You said, “Look, I spent seven minutes here and I’m going to actually make the changes in real time and it’s up to you whether you want to do it or not,” and I said, “Hell yeah. I want to do it and we’re going to do it.” But with that you show how you did it, and can I just give this to whoever is listening to this right now?

David: Absolutely. Yeah.

Andrew: Okay. So we’ll give them a copy of that video and they can watch as you think it through and what decisions you make, and then they can also see how you pick the size of the text so that it doesn’t seem like an arbitrary decision.

David: Right.

Andrew: Here, I think people know, but this is what we’re talking about here. It’s the home page right there. We can make it a little bit bigger so we can see it on the screen, and that is what you’re changing, these headlines. All right. So we’ll get to see your thought process there. Let’s go back to the big board. The next one is, [laughs] I do have this, “Get over your font anxiety”.

And the reason I have font anxiety is because there are font nerds out there now who love to blog about fonts and they love to talk about what’s right and what’s wrong, and I don’t know what’s right or what’s wrong, so you know what I do? I pick Helvetica because Helvetica has a documentary that I saw and I figure, “All right. Great. No other font has a documentary. I don’t want them.”

David: Yeah, Helvetica is not a bad choice. It has a certain sort of character to it that’s appropriate for certain situations and then there’s other fonts that are better for other situations. But there’s really just like three kind of main categories of types of fonts and if you kind of pick a favorite within each of those categories and stick with it you’ve got plenty of other things to worry about.

Andrew: What are the categories?

David: So the categories are humanist, geometric, and rationalist.

Andrew: Let me write it down.

David: Or realist, realist.

Andrew: Because I think you kind of lost me here, but we can get me back.

David: Yeah.

Andrew: Humanists, okay, let’s make it bigger. Great. People see the big board, that’s secret. [laughs] Humanist.

David: Geometric.

Andrew: Geometric?

David: Yup. And realist.

Andrew: Okay. By the way, this could use more space on the left, I know that much.

David: Yeah. This is the part where it little complicated because these are, they’re not the only type of classifications of fonts that are out there and they are not mutually exclusive either, but they are kind of the three main ones that dictate how a font is going to feel.

Andrew: Okay.

David: Humanist fonts, they’re really influenced by when people used to write, they used to scribe things like [??]

Andrew: What do I need this for? Do I need one humanist, one geometric, one realist font on every page that I create? No.

David: Well, yeah, I mean it can get complicated and I’ve got stuff about it in my book. I’ve got a [??] answer, you can Google about it as well. I do have a list called “All of the Fonts You’ll Ever Need” at People who sign up for my email list get like a list of fonts.

Andrew: Okay.

David: The point being though, that if you kind of pick a few favorites, then you have plenty of other things to worry about. And, you know, there are some great new, high quality typefaces on Google fonts, places like TypeKit. There are some really great ones. There’s also a lot of bad ones.

Andrew: Okay.

David: In fact, most of them are bad, not very good, and they’re not going to help you out. And so unless you learn what you’re doing with them, then keeping it simple, worrying about the other things will get you well on your way to just worrying about something else.

Andrew: Okay. So don’t think about it too much, but do I need a humanist geometric and realist font? Or did I just take us down a wrong alley here?

David: Hmm. Well, it depends on what you’re going … This is where it gets complicated. You might have …

Andrew: So what’s the simplest thing that we can do to leave people with? And by the way, I do have the PDF right here.

David: Yeah.

Andrew: I always have it for some reason. I click on the guest site before I get it.

There we go.

David: Yes.

Andrew: It’s the PDF. It’s available on your site.

David: And, you know, that’s not to say that literally nobody should use any other typefaces. There’s a lot of other great ones out there, but this is just to say that if you’re just stuck with these, you’d be fine.

Andrew: So just pick one of these, and I’m good to go. And I can see, oh here, this actually describes it, what the font is geometric realist. How do I link this to people so that they have access to this to…

David: I can give you access to that.

Andrew: Should I just tell them to go over to your site?

David: If they go to and sign up, I have a free email course and the first thing that they get is this PDF.

Andrew: Where is that? I saw there was also available on your personal site, right here. Oh, actually I don’t even need to do that, it’s right there. I remember playing with the site, right?

David: Yeah, that’s something I probably need to fix.

Andrew: Cool. I do that and then I get it.

David: Yep.

Andrew: Great. Cool. All right. Onto the big board.

David: Yes.

Andrew: Oh wait. Let me see. You had an example of bad and good. Obviously this is very bad.

David: Yeah, I mean, that was so bad that I could hardly even take it seriously, but …

Andrew: This is good. What makes this one good?

David: Well, this is Shaun Inman who is a great designer. Lots of simplicity as far as what typefaces he is choosing, things are lined up nicely. He’s using white space in a way that is really intentional. You can see where white space is being used to separate these posts from one another as far as like how much white space there is. And there’s a sense of organization in the amount of white space between, say, the title of the blog post and the metadata beneath it.

Andrew: Okay.

David: Do you notice there’s like a rhythm to it, like if you look at the height of the bottom of the metadata to the top of the post title, that height is pretty much the amount of white space there is between the bottom of the metadata and the top of the next post title, for example.

Andrew: I see.

David: Right: There’s like a sense of order to it.

Andrew: Okay. All right. Onto the next big one. We talked about font anxiety. Now we’re going to talk about colors, and you say let’s just pick one color.

David: Yes.

Andrew: Color is complicated.

David: And color’s very complicated and there are all sorts of different color schemes and color configurations out there that you can worry about but actually if you look, if you look really closely, say like the icons on your iPhone or something, you’ll find that most brands have like one main color associated with them.

Andrew: Okay.

David: Keep things simple.

Andrew: One color …

David: Like add that one color throughout where you need it, then you’re well on your way.

Andrew: You did that on your site which I’ve been bringing up a bunch.

David: Yes.

Andrew: What happened?

David: So I mostly … Well, I’ve always had kind of an earthy feel to my sites. There’s a little bit of a texture to the background because I’ve always to emulate like natural paper, but blue, I’ve got blue in my headshot. Blue is a calming color. It enhances creativity, and I wanted that for my main color. And the rest of it there’s no black being used on any of the type either. The type is like a dark brown.

Andrew: Okay.

David: So …

Andrew: Let me understand. When you’re saying they’ll pick a color, it sounds like you’ve got, it looks like you’ve got three colors. This is one color.

David: Mm-hmm.

Andrew: The entrepreneur cycle of delusion.

David: Sure.

Andrew: This is another color, more blog posts. Here’s another one.

David: Mm-hmm.

Andrew: I just clicked. I didn’t mean to click.

David: The more blog posts … That’s actually a lighter version of the color that I’m using for my main text. I’m just using Wes there.

Andrew: I see.

David: For framework I’m just using lightened 50%.

Andrew: You’re talking about this now. Now I’ve got my telestrator back.

David: Exactly.

Andrew: And this and this, all the same color.

David: Yeah. So I think using shades of, you know, tints and shades of like whatever your black or gray, whatever you’re using for text is good, and then having an accent color, or whatever your sort of main brand color is.

Andrew: For you that’s … this is the accent color.

David: And that’s the blue for me.

Andrew: Got it. And it’s also in here.

David: And yeah, do you notice I’m harmonizing with my headshot which has blue. I’m wearing a blue shirt in the picture. I’ve got a blue background. You know, that’s not a mistake.

Andrew: Okay. So pick a color and then have another color as an accent color, is that what I’m taking away from this?

David: I think the main takeaway would be to use shades of gray and an accent color.

Andrew: Shades of gray and an accent color.

David: And one color, just pick one color. Keep it simple. You have plenty of other things to worry about. You know if you gain confidence in like the alignment and all that stuff and then you start willing to play around with color more, you want to redesign for hackers or something like that, learn more all about other stuff, then cool. But if you’re starting out, keep it simple.

Andrew: Okay. But you then are breaking that rule, aren’t you by going with brown and blue?

David: Yeah, I mean, I have a degree in graphic design.

Andrew: I see. Okay. All right. Everyone else needs to stay with …

David: So I went a little [??].

Andrew: All right. It looks like that’s what he did.

David: I can drop that knowledge here, but we’re going to be here for a while.

Andrew: No, I don’t need to be here for a while. I mean, I’m happy to be here for a while, but I don’t want to get overwhelmed. Just give me a couple of basics. All right. You used shades of gray and one accent color, and that’s it. You’re done.

David: Yes.

Andrew: Okay. I can do that. All right. Let’s go on to the next one. The next one is avoid column soup.

David: Yes.

Andrew: Here’s what column soup looks like. What’s going on here?

David: So there is something that we used to see really often. People use frameworks such as Bootstrap which are great. It really makes it easy for you to communicate a site that looks pretty professional really quickly. Now because these frameworks are made for lots of people for a lot of different situations, they have what’s called a grid, imaginary vertical lines that you can use to organize things.

Andrew: Yeah.

David: And there are 12 columns usually. By default Bootstrap is 12 columns. What people do is they start to feel anxious. They start to feel anxious so, all right, I’m using three columns here for the navigation and then I’m using nine columns for the splash, and then underneath I’m going to just divide up those nine columns into three. And then what about these other columns? I haven’t used all these other columns.

Andrew: Oh.

David: And then they start feeling like they need to actually use all those and organize them. A framework something like that has 12 columns. Let’s just pretend like you have four columns. Pretend like you have three columns and think about what you’re saying about your information each time that you chunk it up and the way things line up.

Andrew: Okay.

David: And then you don’t put this visual mess that we have in our example here.

Andrew: So go with either three columns or where is that? Right here. There it is. Just pick the number of columns that you want to use and be consistent with them.

David: Yeah, be consistent with them. Notice on the left hand side we have this navigation, and we’ve basically delineated that left hand side as, okay, that’s where navigation goes. And then we have, but we’ve completely ruined that by putting … see where it says complaints and death threats . It’s like spanning over this …

Andrew: Hang on. Let me bring out my telestrator here. Complaints and death threats. I think here’s complaints.

David: Yeah.

Andrew: It’s hard to see, and we also have death threats which is underneath here…

David: And then, yeah, draw a little vertical line to the left of where it says “Hey you” in that column that you’ve got there, because now we basically said okay, this is our main content and this is our navigation on the left, but then we totally broke that by getting anxious about using all of our columns.

Andrew: So what about this one? Here’s a site we showed from earlier. Let me bring up…

David: Sure.

Andrew: The [??] again. It looks like this is all one. How about I use red? Red work? Yeah. This is one column.

David: Yeah.

Andrew: It looks like they’ve got … here’s a second column.

David: You mean at four?

Andrew: Yeah. So is that okay?

David: Yeah, that’s fine. They basically- but, I mean they’re still using the grid in the way that the grid is supposed to be used. The grid is basically just there to prove flexibility. It’s there to provide choices for you, and that’s working out fine here because they’ve got a splash that goes all the way across, and then they’ve got…

Andrew: But what about here? Now we also have…

David: Right. And then they went into three.

Andrew: Yeah.

David: This is where we get into, you know, why design is so complicated for people, is that, you know, there’s these rules and guidelines and things that you can do that will make things a lot easier for you, but very skilled designers can go ahead and break these rules and manage to make it look fine. It’s like if you pick up a guitar and think you’re playing jazz, like…

Andrew: If we’re not at that level, we keep it like this. Where is it…? Like this. It’s okay to have this top section, and [??] it’s okay to have something like this, and columns like that, but then if we’re going back below then we want to come back to this one column, so go with one four one.

David: Well…

Andrew: Or are you telling me to even stick with one column or three but don’t change what I’m starting?

David: Yeah, I think one-four-one could be a good rule for a site like that. They can go ahead and do that. The way they get away with going down to three there is they experience such a clear delineation that this is like a new section.

Andrew: Okay.

David: That… it became okay. Where they go to three columns they’ve got a bright blue background and it’s very clear that it’s totally unrelated to the four columns that were above it.

Andrew: Okay.

David: And then they go to four again, see?

Andrew: Yeah.

David: And then they go straight across, and then the three. Some of those things might be a matter of how many items do we have that we need to organize here, which they’re using icons to express these various things. It would be different if you’ve got larger amounts of text.

Andrew: Okay. Well, they’ve got this box here. I’m going to complain to them right now. “Hi. Why so many columns on your site?” We’ll get the answer by the end. Now I’ll troll on their site.

David: I do think they did a good job, though. They don’t have column soup.

Andrew: No, they don’t have column soup. All right. You’ve explained why it is that they able to get away with it by explaining the clear delineation, but you’re saying if we’re just getting started keep it simple.

David: Yeah. Keep it simple. Most importantly, don’t feel like because there’s twelve columns you need to use every single one of those vertical delineators at some point during your design, which is what happens to a lot of people who are starting off.

Andrew: Back to the big board. Next thing is to consider readability. Fifteen words per line or less, no more.

David: I’d say eight to 15.

Andrew: Eight to 15 is where you want us to be, let me correct it right now.

David: Yeah, you don’t want to have three words a line.

Andrew: Eight to 15 words per line.

David: Yeah.

Andrew: You did that on your site, right?

David: Yes.

Andrew: This is… I’m bringing it up. What happened? What did it used to look like?

David: Well, on my site it didn’t… I’ve always been eight to 15. Actually, I made the text even larger since you’ve got that screen shot…

Andrew: Yeah, I’ve been zooming it in. It looks like that.

David: Yeah. Notice as you zoom in, you zoom out, if you change the browser size, it’s always going to be pretty much eight to 15 words per line. If you look at something like Wikipedia, for example, this is a problem with responsive design all over the web, especially with text heavy sites. There are these sites that have 50 words on a line.

I think Wikipedia has something like 50 words on a line if you bring it across a long screen. I don’t know, it’s like they figure,”Oh, if we make the window bigger we have to fill the whole space.” That makes it so hard to read because of your eyes following all the way along. It gets to the end and you’re so tired, and you have to go back and find what the next line was. If you’re in a long paragraph, sometimes that can be very hard. Optimal for reading is eight to fifteen words per line.

Andrew: I think that’s why people end up using tools like this one. Let me bring up Wikipedia here. Desktop… Chrome… Here’s Wikipedia. I end up just using this when I need to do my research. If I’m doing a lot of reading I can’t read Wikipedia style articles.

David: Yeah, when I redesigned my blog that’s something I thought about. There’s all of these readers out here. People are using instapaper, pocket, and things. Why not just make your site readable?

Andrew: When you did that did you see any change in your user interaction?

David: I’m glad you asked. I was actually just looking at this earlier today. It’s been more than a year since I redesigned. I look at that a year after I redesigned compared to the year before I redesigned. My blog before was a lot like a lot of bloggers you see, where over on the right hand side there’s this sidebar with most popular links, previous article, and next article. It’s like doing everything I possibly can to try to get people to just stay on my site and read more stuff. It has kind of the opposite effect. Instead, I wanted to make it all about the text.

I thought about what my goal was, which is I’m not looking to make ad revenue on my blog. I want people to come to my blog and read the content, to feel that content, and to be compelled to read more. I’m not necessarily looking to reduce my bounce rate across the board, I’m looking to get those people who are resonating with my content. What I found was that session durations, the length of time that people spent on the site, doubled.

Andrew: So people were spending twice as much time on the site, per visit, after you changed it?

David: Yes. This is over the course of a year, too. This isn’t just for a week. Year for year, they spent twice as much time. The number of people who spent three minutes or more went up 27%. The number of people who spent 30 minutes or more on my site went up 80%. These are people who come, read the article because it’s readable, and there’s not all this noise they’re trying to distract from.

Andrew: Here’s what we’re looking at. Let me bring it up. This is what the site looks like now, and this is what the site used to look like, right? [??] There we go. This is what it used to look like.

David: This is what it used to look like, and it’s a little bit embarrassing. I had certain goals when I started that particular design. Then so many things changed. The technology changed and then things started to be hodge-podged. The text was smaller. I was trying to get people to visit more popular posts. I ended up writing a book and stuff. Time just wiped the slate clean and make it about the content.

Andrew: I’m surprised, actually, that people stay on the site longer when you eliminate all these things that they could be doing on the site. I could imagine, someone’s done reading this post and then they might want to read this one. They don’t do that anymore. You don’t show them what else is available.

David: There’s a little bit of an effect of, if everybody made their site look like this, which has happened with things like media and stuff, it might start to have less of an affect. When people see this they’re like, “Oh wow, I’ve been having information thrown at me all day. Here’s this vast expansive of space and text that I can read, with quality writing.” Then they feel compelled to spend more time. In fact, the number of people who read five pages or more on my site would have 62%. Returning visitors will have 41%. So I could very easily have missed out on those things if I was looking for bounce rate. Bounce rate didn’t change, but because across the aggregate I didn’t necessarily move the needle on bounce rate.

The thing I was going for is what Austin Theon had a great book called Show Your Work. You want hearts not eyeballs, so I wanted to make fans. People who resonated with my work. I wanted to give them a great experience. I didn’t want to just try to get some kind of across the board aggregate great experience, but I did that. The people who really got a lot of depth out of what they saw there just went way up.

All right. Let’s go back to the big board. The next big one is, learn the rules. See the patterns to apply a framework. This is easier to understand when we talk about Shane.

Shane is a reader of mine who got designed for hackers for a Christmas present a couple of years ago and he emailed me out of the blue. I couldn’t believe how I got in touch with him. It’s like I couldn’t have made up something better. Shane is as much a software developer and he is a software architect. He’s been a software architect for 7 years. He’s colorblind. When he was a kid he was painting oceans purple and cows green and Shane was building various apps, it just really bummed him out to have things he would work on and people wouldn’t respond to it. He said it was not fun to make things that nobody wants to use because they are ugly.

So he read “Design for Hackers” which we are giving you the tactics today, but design for hackers is mostly there to give you a framework and understanding on how design works for you. How do all the different factors interact with each other to give a great design?

Shame did that and he learned about typography and white space and a lot of things we are learning about here, but a little bit more in depth. That way he had a framework that he could work with. That way when he saw designed that he liked or designs that he didn’t like he actually had something to look at. To find what he saw, to some sort of understanding, and through that process he just kept getting better and better and better.

The ultimate test, Shane started designing bootstrap frameworks and started selling them and he has made enough money on the side that I can’t show you Shane’s picture, I can’t give you his last name because he doesn’t want his employer to find out he is making this much money selling bootstrap frameworks on the side. Which is the ultimate test because people who are buying them because of what they look like.

He’s come up with little trick to get around being color blind.

The reason that we bring him up is because if he doesn’t have the ability to notice color and he doesn’t have a major chunk of what it takes to be a designer, he needed to be something else and that something else was he came up with a framework, a structure that allows him to do it. So how do we do that for ourselves? If we don’t have the design eye, if we don’t have the ability for colors, what’s a framework that we can use that allows us to do something like this.

Well the framework we are talking about is exactly why I wrote “Design for Hackers”. To give somebody some kind of vocabulary to understand everything that comes together to make a great design. Unfortunately, this particular tactic is a little bit more involved than the others in that it involves investing the time to understand everything that they’re seeing and the designs they like or don’t like.

Andrew: I see. It’s not that we’re giving people a framework within this point, but we’re saying, “Look, if you don’t have a design eye, you don’t feel you were born with it, what you can learn is some framework, some techniques that you can use to compensate for it and Shades is an example of what can happen when you do it.”

David: Yeah, exactly just to have some sort of understanding vocabulary of what is is that you’re seeing and to be a fan of design. Everybody that I talk to who’s leaning design, they all have some sort of inspiration folder where they just keep screenshots and different elements of things…

Andrew: What do you keep yours in?

David: What was that?

Andrew: What do you keep yours in? Delicious?

David: I actually don’t have one. My personal framework is the history of graphic design and classical stuff that I learned in college. I think that a lot of these people use Sketch and Evernotes to keep those things.

Andrew: I’ve been doing that. I now have a tag in Evernote. With Google Chrome and Safari you can easily save to Evernote. I have a tag there that’s called “Design”. When I do design something, I can say, “Look, I like that one and I like that one. Can you make mine look like that without copying it?”

David: Yeah.

Andrew: All right. You’re advocating that too?

David: Yeah. I think that if you have an understanding of that framework, especially, like the one I talk about in “Design for Hackers”… I don’t want to sound like I’m shoving my book down people’s throats, but I did write it because I felt that it needed to be written. People needed to know this stuff. If you have an understanding then when you tell your designer, “Make it look like this,” then you can actually then understand better why that particular design looks that way and how it meets the particular objectives that that company had. Through understanding that then you can understand, “Okay. Well, how are my objectives different and then how might that design be different?”

Andrew: David, you don’t have a design book or design tag or a design something to save it all?

David: What’s that?

Andrew: You don’t keep a design book or a design tag…

David: [??]

Andrew: Yeah. I’m surprised.

David: You might think that I would but I don’t. I just happen to have… I wrote a book that encompasses my entire understanding of design because for me it’s… I have that framework very well established in my brain.

Andrew: Do you feel like you were born with a gift? I remember in your book you saying that you didn’t even have good penmanship or even an understanding of why penmanship was important when you were going to school. Do you feel like you were born with that gene or is it something that you taught yourself the way hackers teach themselves how to code?

David: First of all, yes, my penmanship is still not very good.

Andrew: All of our penmanship stinks.

David: Right. We’re on computers all day. My mother was real good at art and drawing. When I was a kid I loved it. I just spent so much time in my room alone by myself, just skipping meals, just hours a day drawing. It was always clear that I was going to do something related to that at some point. I do think some people are maybe born with an inclination toward certain things. I still strongly believe that just because you aren’t born with that that doesn’t mean that you can’t learn.

Andrew: You can [??]

David: People like Shane, Shane thought, “I’m just not programmed for that.” People tell that story to themselves. “Oh, I just, I can’t learn this. I’m a developer. I think a certain way.” I don’t buy that.

Andrew: All right. On to the final point. I did promise you that we’d be done by now. We’re running a couple of minutes late, but we only have one left.

David: Cool.

Andrew: That is to focus on one goal. We look a moment ago at your site at a before and after. You had to kill some babies in order to, that’s how you say it.

David: Yes.

Andrew: I know it’s strange. I’m going to have a baby. It’s weird to say kill some babies. You had to kill some babies, you said, to get to…

David: I don’t have any babies so it’s easy for me to say.

Andrew: I remember actually when my wife was pregnant, I was listening to Iron Maiden to fire me up on my runs. One of them they sing about kill the unborn in the womb. It was such deft metal.

David: You’re like no.

Andrew: That means something different now that my wife is pregnant.

David: I need to change my musical tastes.

Andrew: You had to make some heavy design decisions, let’s say, some heavy editing here.

David: Yeah. We talked about that a little bit. I decided, “Okay. What were my goals here?” I had different goals back when I first designed it. That was when I was going to start maybe doing some freelancing. I kind of knew that I maybe wanted to write some kind of book someday. I wasn’t sure what it was and I just had a lot of different goals.

I ultimately decided on the latest redesign that I cared about, one: People connecting with my content. Really reading it and having, this is almost an exaggeration, but an out of body experience. They get there and they’re just entranced. They just want to read what’s there. And I wanted to give them a place to do that. And then I next I wanted to promote my book. That’s where the thing that pops up in the bottom announces my book, but it doesn’t really do that until you’ve read the whole article. You’ve got to the end.

Andrew: Oh yeah, let’s see if we can bring that up to show. That comes up.

David: I completely forgot about getting RSS subscribers. I don’t have annoying social media things up at the top. I really just cared about depth.

Andrew: I think I need to do that too, get rid of annoying RSS things at the top. But I feel like people need that sometimes. So what do you do with?

David: I feel like people who know how to use RSS know other ways to figure out how to do that. I’m not somebody who uses an RSS reader anymore.

Andrew: And I guess more RSS readers, you know what actually? RSS, you convinced me, you don’t really need it because most RSS readers now can just get the domain at the site and then they’ll find the RSS link, right?

David: Yeah. We have the technology to just copy and paste the URL. Now I do have the feed burner chicklet way down at the bottom. And then on the browsers where it’s available I have it sort of faded. It’s down there. It’s down there, you can grab it, and drag it, and stuff if you’re so inclined.

Andrew: The book doesn’t come up until right there where I hit the bottom of the post.

David: Yeah, I just tried to hide those things. And I just put the greatest hits down at the bottom. And that’s not a popular post plug-in, that’s just my hand picked, these are the posts that I feel are important.

Andrew: I have found that this is helpful in discuss.

David: Yeah, discuss does a good job with that.

Andrew: Yeah, they do pick out recommended follow-up reading that people actually do click on. I was thinking of killing that on the site and then I looked at the stats and I said, “No, people are actually using it.”

David: Yeah, yeah, one of the things I did in the redesign was go to discuss comments and that was good. They’re good.

Andrew: All right so get rid of everything. Focus on the one goal, for you that one goal was getting people to understand that there was a book there, and get them to understand and care about the book. You wanted them to actually read your posts, and that’s the goal.

David: Yeah, primarily I wanted depth of connection. And that’s why I was like, “Give them a place where they can read.”

Andrew: All right. I’m hoping you’re not too expensive after reading the book, after seeing this, and also after seeing what you did to Mixergy, very small but really significant powerful changes. I’d like to hire you to work on both Mixergy and one of the other sites. Frankly, first most important this site that I have for helping people do interviews. I think we could use so much there. And I hope you’re not incredibly expensive because I think I’m going to have to pay you, even if you’re incredibly expensive, because you’re incredibly good.

David: Well thank you. I would be really excited to learn more about those sites.

Andrew: All right cool. All right I’ll follow up with you on that. Anyone else who wants to have a follow up here is the way to do it. Check out “Design for Hackers.” I got it on the Kindle. You can get it in paperback, right?

David: You can get it on paperback, Kindle. It’s everywhere books are sold. And if you want a taste of the book I do have a free course at

Andrew: What sells more? The paper version or the digital version?

David: I wish I just had an answer for you for that.

Andrew: You don’t keep track.

David: I actually don’t even know.

Andrew: You know what? Because I read the digital version, I almost always read the digital version, and you had this interesting thing in there. You said, “Look, if any of the images are off because you’re reading a digital version I want you to complain to the publisher.” I looked I couldn’t find one. I wanted to complain. I thought that would be so cool. I said, “Let’s let the publisher know they’ve got to do right by the author.” All right here is the book again, “Design for Hackers.”

Thank you all for being a part of it. David, thank you for being here and teaching us.

David: Thank you so much, Andrew. Great to be here.

Thank you. Bye everyone.


Master Class:
How to launch (and price) your product

Taught by Ryan Delk of Gumroad

Master Class: Launch Your Product

Report Bugs

Master Class Toolbox

Course Cheat Sheet


Andrew: This session is about how to launch and price your products. It’s led by Ryan Delk. He is the head of growth and business development at Gumroad. Gumroad, of course, let’s bring up their webpage, is the platform that helps creators make a living by enabling them to easily sell what they make to their audiences. You’ll see these guys have incredible, incredible users on their platform.My name is Andrew Warner. I’ll help facilitate this session. Ryan, thanks for being here.Ryan: Andrew, thanks so much for having me. I’m excited to be here.

Andrew: One of the many creators on your platform is a guy named Sasha. What did he create?

Ryan: Sasha is a designer based in Japan. A lot of things, a designer by trade. He’s worked with a lot of amazing companies. A couple years ago, he wrote a book called Step by Step UI Design. This book was on user interface design, aimed at tech companies. The book did well. He sold a bunch of copies of it. He made tens of thousands of dollars over the course of the book’s life, over the last three or four years. It was his first product that he sold, and he was writing it on the side while he was doing design consulting work.

He was happy with the results. He thought it was good. He saw this trend of what a lot of other people were doing with pricing and promotion. He decided to do his own version of that and keep things very simple. He sold the book for $5.99. He eventually added a couple different options and stuff, but kept things real simple. He made $20,000 or $30,000 over the course of the life of the book, which is great. That’s a great income from a side project. He was able to, over the course of the next couple years, learn a lot of things about product launches. A lot of things we’re going to talk about today that were able to help him make more than ten times as much on his next couple launches.

Andrew: Using the things the ideas that we’re going to talk about today, including one specific idea that we’ll discuss later on in the program, he was able to go to over $300,000 from $30,000.

Ryan: Exactly. Yeah.

Andrew: All right. That’s the power of what we’re talking about here today. Boy, you are the guy to do it. The reason we invited you on here is because I’m seeing more and more content creators use Gumroad. I figure as the person who’s introducing them to the platform, and the platform that helps them earn a living, you guys, and you specifically, know what it takes to do well. You’ve watched all these people grow.

Here’s the big board of ideas that we’re going to be talking about, all based on Ryan’s experience. The first one is basic, but it sets the foundation for everything else. You’re saying we should build an audience the smart way on our email list.

Ryan: Yeah, absolutely. When we first started with Gumroad, we had this idea of selling should be as easy as sharing. I think that’s still very, very true. That’s still something that’s a very close part of what we do and what we try to do. We learned very quickly that this idea of just sharing products on social media, for some people that works really well, particularly very large creators with massive audiences. That can work well, but for the majority of people, social doesn’t convert very well.

We learned very quickly through looking at data on campaigns and through data on where people were actually having conversions. People that would click through, view the product, and then end up purchasing. We started to see this amazing stuff where email would convert much, much better than social.

For every hundred viewers that came to a product on average, let’s say through Twitter and Facebook, a hundred users, maybe one would buy the product. Maybe two, for someone with a really, really engaged audience. Versus that same person sending it out to a hundred people via email, we would start seeing cases where eight or nine or 10 or even 12 people would buy the product when coming from an email list.

You’re talking about literally more than a 10x difference in conversion coming off of social versus email. We started to see this pop up with a lot of different people. A lot of different creators that were some of them learning it along with us, some of them we were able to share with them and say, “Hey, you should really invest super heavily in email.”

It’s hard because social is a very sexy and interesting thing. Everyone wants to build these big audiences on Twitter and Facebook, and there’s a lot of value there. It’s good for your brand. You can get a lot of engagement. Things can go viral. But when it comes to selling products, email is the way to go.

The person that I think does email probably better than anyone else I know is Brendan Dunn. He does a lot of things. He’s a former agency owner. He lives in Virginia. He has written several books, has a couple course products, has a master class, all targeted at freelancers. Almost any type of freelancer could apply his stuff, but a lot of consultants, people that are billing by the hour, teaching them how to get more leads, charging more for their rates. And then eventually build their consultancy or grow their own consultancy if that’s the why they have a lot of interest in.

Andrew: Let’s bring up his site it is, there it is.

Ryan: Yeah, and what you actually say there was and exit model, prompting you to go to his email list, which is one of the reasons why he does this well. So this is a great example were he actual set this up, this is new. And a lot of people don’t like these exit models and they think they’re a little bit obtrusive.

But what he did he actually only shows you this if you come into his site from Google. So if you Google something and his blog ranks highly for it and you have no context for him prior and you’re coming in, then he shows you this to try and get you on his email list.

But if you’re a regular blog subscriber you’ll never see this because he doesn’t want to give you that obtrusive experience. Which I think is just brilliant.

Andrew: You will see this if you go directly in there. And again he’s asking for an email there. Oh look his Mixergy interview is on his site.

Ryan: There you go.

Andrew: I see, I didn’t realize that he valued email so well. So what does he do with email beyond the [??] we just say?

Ryan: Yeah, so there’s a lot of things he does very well. The thing I think is really interesting is he launched this campaign, last year I think, where he basically started trying to convert his social following into email subscribers.

And value for him of an email subscriber is massive. He’s amazing at marketing, amazing at using a lot of techniques we’re going to talk about there. So he’s able to drive a lot of revenue for every email subscriber that he can get. Particularly if you look at it on like a lifetime value angle.

So in the double digit dollars easily. For every new email subscriber he can. And so he started retargeting people who came to his website and would then visit Facebook or LinkedIn or other social networks. Retargeting them with an optimum to get involved in one of his email courses.

So I think he tried a couple different courses, things on how to raise your rates, how to get more leads as a freelancer, how to build your own agency whatever it might be. And he had these incredible conversation rates because he has people … he was giving them something valuable, which we know assuming that a lot of us here about like email.

We use something, tease them with some, and give them something of value in exchange for getting on your email list. So it might be access to course, a book whatever it might be. And we’ll talk about that a little bit later.

Andrew: Let’s look at how he’s doing it, this is his page the moment … let me bring up my web browser again. This is how I bring up my web browser.

Let’s take a look this is Twitter account right now. And the very top thing that he has there because he pinned it and you can now pin Tweets to the top of timeline. It’s this learn how to price yourself right with my new nine day email course. That’s the link that he’s promoting.

If I click on that I see a request for an email address, right there. If want to take this free first lesson and then reason for why I should do it and again another email input box. And so this is what he’s doing to convert social viewers into email subscribers. And then from there as you said it’s much easier to sell.

Ryan: Exactly because once you have the email address you have a direct line to them versus relying on them logging into Twitter and you see it and logging into Facebook and it appearing on the top of their feed. And that’s a great example. Every person that hits his Twitter profile sees that direct URL which basically I call to action for them to subscribe to his list.

Andrew: It’s really important to hear that coming from you guys because I know that Ty Hill created Gumroad as a place where you can sell as easily as you Tweet.

Ryan: Totally.

Andrew: It was social centric at first, but obviously you’re finding that are other things that work even better.

Ryan: I mean I certainly see the value in social and definitely a huge fan of Twitter and Facebook. We just did a deal with Twitter while we’re working on helping them bring in stream commerce to So definitely see a lot of value in social.

But I think for people a lot of people in our audience, a lot of people that we work with especially in the creators email just convert so much better than any social channel. And it’s a huge opportunity especially if you’re investing heavily. And so sure you want to convert these people and the email subscribers.

Andrew: All right on to the big board again, here’s the next big idea which is you want to prime your audience for your product and use drip marketing and there’s a company that you guys worked with Colt Ford.

Ryan: Yes.

Andrew: Excuse me actually its musician not a company. I’m so used to calling everyone companies.

Ryan: Yeah, so something that I think that’s interesting at Gumroad we work people don’t know that’s a lot of different types of creators. So we work with independent creators who don’t have an agent, don’t have a manager just write books or courses.

We work with well-known authors people like Chris Colbow, who Andrew and I were talking about earlier. And we work with really well-known musicians, filmmakers, people in the entertainment space as well. So we’re able to sort of gather data and look at what works across all these verticals. And the cool thing about everything we’re talking about today is that we’ve literally seen this work for every single type of creator and every single vertical. So this isn’t just something that works well if you’re an author.

It also works well if you’re a filmmaker, if you’re trying to sell software products, whatever it might be. This artist, Colt Ford, he’s a country artist. His label is Average Joes Entertainment, out of Nashville. They had an album coming out. He has a pretty decent very, very engaged following that loves all of his stuff. He’s sort of a hybrid hip hop country artist, which is sort of a weird, niche market that he just dominates.

We were talking with his label about doing this release through Gumroad, and they came to us and they said, “Hey, what could we do that would just really send us over the top? What are you guys seeing that works really, really well? What can we emulate?” Props to them. They were very open about trying new things, things they had never tried before and weren’t sure if we’re going to work.

I said, “Listen, there’s a lot of things that could work. I think what would really crush it is if you guys A) invested really heavily in getting everyone off of social onto your email list,” like we just talked about, “And then B) took that email list and started priming people to get excited about the album.”

Previously, what they had done is they would just email everyone the day the album was out and say, “Hey, go get it on iTunes. It’s here. Go.” That can work, but as something that Nathan Barry, who I think has also been on Mixergy, talks about often is that you should convince your audience to buy before they have the opportunity to buy. You want them already so excited about what you’re offering that they’ve already decided in their head, “I’m going to buy.”

We worked with them to craft these little nuggets that they would drip out. They would try to get everyone on their email list by saying, “Hey, if you join the email list, you’ll get to hear 30 seconds of the new single.” Or, “You’ll get a sneak peek of the new music video.” That would get people onto the email list. Once they were on the email list, they sent out this series of drip emails every single week. For people who don’t know drip emails, it’s just a fancy term for emailing people over time, leading up to a product launch.

They would send out little 15-second teasers of Colt doing something related to the album. They would send out interviews with him that were behind the scenes about the album. They would do all sorts of these little teaser things leading up to the album. They saw this work in a huge way. They were going to be excited if it was Top 50 in the category. He’s got a decent audience, but he’s not this international superstar.

We actually just recently got the results back from this campaign. We saw the sales, but we weren’t sure how it was going to stack up. The album was actually a massive hit. It actually went to number one in country. Obviously, he was very happy. The label was very happy. They attribute a lot of the success to this campaign. They just sent us this framed album plaque.

Andrew: Tilt it so the top is down and the bottom… Yeah, there you go.

Ryan: They sent us this framed album plaque of the album going number one, thanking us for our help and helping make that happen. That was cool. We actually literally got that yesterday.

Andrew: That’s so cool.

Ryan: A very timely example. It’s a good example. I think we hear a lot of tech people writing about these things, but these strategies work. They work across the board. They work for everyone.

Andrew: What are some of the things that we can think about dripping out? It’s hard to come up with stuff to write to tell people about a product that they can’t even buy yet.

Ryan: Are you asking… Sorry, you’re breaking up at the beginning.

Andrew: What are some of the things that we can drip out over time?

Ryan: I actually think that it works really well to give away some of the best content or best parts of the product that you’re trying to get them to buy before it’s actually available. If you’re selling a course, things like snippets of video interviews, or maybe even a full interview that’s a part of the course. Chapters of a book. An extended trailer of a film. The first single off an album. All these types of things work really well.

What I’ve heard from a lot of people is that they’re hesitant to give away anything too good. They’re afraid people won’t buy the product. I think in some cases that might be true, but in most cases if you give me something really cool, my instinct going to say, “OK. There must be a lot more cool stuff in this product. I’d better get it.” I think in general, giving away the coolest, most awesome stuff to the list, especially as a drip sequence, is the best way.

Andrew: Okay. That’s easy to come up with. If we have the actual product, then slicing off pieces of it and handing it out is so much easier than trying to come up with yet another piece of content, and another, and another, and another.

All right. Let’s go on to the next big idea, which is to have a three-tiered pricing plan. I think everyone knows it, but I think it’s still worth explaining what this is.

Ryan: Yeah. Tiered pricing is basically the idea of rather than launching a product at a single price point, rather than selling a book at $5, rather than selling a course for just $25, you should have multiple product tiers at different price points with different levels of value. You have the basic edition at one price point, a mid-tier edition at another, and then a deluxe, extreme edition up at the high end.

Andrew: We talked about how one of the people who’s especially good at is Chris Guillebeau, here is one of the way’s he does it. So there’s three different packages, he puts check box next to each one. Software programs are really good at this but content creators like me often do it. And this is what you’re talking about. So Nathan Barry is someone who’s done this really well.

Ryan: Yeah, so Nathan has done an amazing job at this. He actually did it on all his products. And I think it stemmed from a conversation he had actually with Chris. Just in passing that Chris mentioned, you know Tier Pricing’s has actually worked pretty well.

And so Nathan actually tried it for his first product, it actually worked really, really well. And there’s a couple reasons why I think Tier Pricing works well, and we’ll talk about that first then we can talk about the specifics of the actual price points.

But I think Tier Pricing works well because we all have people in our audience, regardless of the size of the audience, regardless of how long you’ve been creating content. You have people who are, you know they have an expectation of how engaged they are, how excited they are about products.

And if you only release a product that is single price point you’re really limiting yourself. And you’re limiting yourself in for a couple reasons. The most of important of which I think is because people who are really engaged and really excited, you don’t give them an opportunity to fulfill their desire to get the most insane amazing package they can possible get. Even if it cost $250.

So Nathan’s case you can look at his App Design Hymn book or the Web App Book whatever…

Andrew: Let’s go look at. There it is.

Ryan: He was several different pricing tiers, that basically…

Andrew: Here’s the package for $249, we scroll down we see the book and videos for $99 and we scroll down below we see just the book for $39.

Ryan: Exactly, and I think those pricing points sort of cover all the different people in our audience. So you could have people that are just to get on your list, just checking it out. And they’re not ready to spend $250, but they might spend $29 on getting access to a new product you came out.

Versus people who have been on your list for three years been getting a bunch of value from you, love everything that you do. And they say, you know what I want the expensive awesome thing, because I want all the video interview, I want all the extra bounce content I want everything.

And for those people you don’t want to push them into just a small price point, if you only still want price point. You want to give them the opportunity to grab that highest price package and fulfill the desire they have for that.

Andrew: So lets’ look at some of his results. Here is one of the screen shots, one of the images you sent me. Can you describe what we’re looking at?

Ryan: Yeah, so this is an image that we sort of came up with, or our design team came up with, during a case study. Where we basically looked at with Nathan, and obviously with his approval, with the percentage of sales, so this is like the actual number of transactions for each product verses the amount of revenue, the percentage of total revenue for each product.

So as you would image the book is the $29, $39 package, the book plus videos is the $100 package, the complete package is $250 package. So as you would image more people on like a quantity level purchase the book, then purchase the higher price packages.

But the interesting thing is you look at the revenue piece and you see that more than half of his revenue, I think during this case study was maybe 54-56% of the total revenue of the product release came from that top package.

And so even though more people on an actual numbers bases are buying the lower price product which is what you would expect. The higher price packages which often we think about as something that maybe a few people would buy or maybe only a few people would be interested in actually make up the majority of the revenue, in this case more than half of the revenue from the product launch.

We’re talking about 50, 60, 70 thousand dollar product launch to a large audience that makes up a large amount of money just by having that complete package.

Andrew: And this is how you’re suggesting that we think about it. Let me bring up one more in here. This is how we think about the tiers.

Ryan: Yeah, so this is a talk I gave I think at Micro Comp last year. And I was looking up sort of what are the ideal pricing tiers because that’s a question that I was getting a lot I was like I know I should use tier pricing but what should those tiers be. And its hard question because I think it’s pretty contextual based on your audience, based on the product.

But what we found to be the highest converting tiers was and these are in multiple so it works for whatever price point you want to set. But 1X, 2.5X, 5X so if you’re thinking about your bottom package being $20, you’re middle package might be somewhere between $50, $60 I mean your top tier package should be $100 or more.

And that will feel really aggressive at first especially if it’s your first product launch to think about that extreme of a tier. It’s much easier to do 9, 20, 30 or something. But that’s really, you need that big of a spread to really push people into the correct package for them. What most people find is that the middle package actually just ends up working like a price anchor. People then either say, “Okay, I’m either going to just get the small package, or if I’m interested in the middle package, I might as well pay more and get that top package.”

Andrew: I see. That makes sense. I can’t believe that it’s working that well for so many of your people.

Ryan: Yeah. It’s unbelievable how well it works, especially just looking at how much more revenue you get because of it.

Andrew: Well, actually, I was going to ask about whether musicians can do it, but I guess the answer’s about to come up. Here, let me bring up the next big point, which is you want to determine your highest converting price point per product. What do you mean by that?

Ryan: This is a really, really important thing that I think there’s starting to be more people talking about. Hopefully, we can contribute to that discussion. I think that for specific types of products, you have to be in specific price ranges in order to convert well. This won’t work for everyone, but I think in most cases you can basically classify your product into an impulse buy category. Something that people are going to stumble upon, read, check out, and then decide, “You know what? That’s for me. I want it. Let’s move forward.”

Or something that people are going to have to think about for longer. For most people, this is anything over maybe $25, maybe $30. That would include things like what Nathan’s selling all the way up to $1000 courses. A lot of things that remit safety sales. Things like that that are things you have to think about a lot longer and really make a commitment to.

I think that it’s easy just to look at what a friend’s doing and then price your products accordingly. I think you have to think about the goals for the product, and then price it accordingly, based on what you think will convert well. If your goal is to just drive exposure, get your message out, build your audience, build your email list, then maybe it makes sense to release a $2 e-book. That might make perfect sense. It’s an impulse buy. It’s quick for people to buy. It’s easy for them to share with their friends. That’s a very quick and easy thing.

If your goal is to create something for a lot of value, to drive a lot of revenue, to spend a lot of time on, then a $2 price point is probably not what you want to aim for. You want to do something that’s much more in the $30 or $40 or $50 or much higher range.

I think it’s important, because we as humans have been conditioned to make assumptions about the value of the product based on the price point. If you tell me a car is $80,000, I’m immediately making assumptions about the quality of the car. Even if I’ve never seen it, never heard of it, I’m immediately thinking, “Well, since it costs $70,000, it must be decent.” Versus if you tell me, “Hey, I found this sweet deal on a car. It’s $1500.” Likewise, I’m immediately making assumptions on the quality of that car.

I think that we do the same thing in a lot of other things in life, including products when we look at them. I think thinking about what the type of price point you want to offer, the way you want to condition your audience, is really important. Both of these can be successful. It’s not to say that you can’t sell products at a low price point, you should only sell high price products. I think it’s important to think about your goals when you’re pricing it, and then optimize accordingly.

Andrew: Let’s look at an example. Is Eminem a good example of this? Is this a good place to bring him up?

Ryan: Yes. Eminem. That would be perfect.

Andrew: I didn’t know, by the way, until I saw the notes for this session, that Eminem is on Gumroad.

Ryan: He is. He is one of the many Gumroad creators.

Andrew: All right. How is Eminem using this idea?

Ryan: Eminem is a hip hop artist. Most people are probably familiar with him. For most of his career, he did the standard music/merch artist release strategy, which was…

Andrew: Yeah, what is that?

Ryan: You release an album, $9. Maybe the deluxe addition is $16. You sell some merch, and that’s sort of the…

Andrew: Merch meaning like a T-shirt for $25 to people who would complain that they have to pay that much for a T-shirt.

Ryan: Exactly. You have a store on your site. That’s what his audience was conditioned to. About four, maybe three years ago, his team had this idea. They actually looked at what Michael Jordan was doing with his shoes, with Nike. Every single one of the drops is very exclusive. It’s fixed quantity. They’re expensive. Everyone knows Jordans are expensive. If you’re going to buy Jordans, they’re going to be expensive. You’ve got to act quickly to get them. Most people don’t complain about the price of Jordans. They’re just excited to get them.

They said, “Well, Eminem is very iconic. He has this massive fan base.” He actually has the third largest Facebook page, with a hundred million fans.

Andrew: I had no idea.

Ryan: They basically said, “Let’s do the same thing.” They spent three years essentially conditioning his audience and his fans to this new strategy. They no longer sold products for a $12 beanie and a $15 hoodie or T-shirt. Everything was exclusive, limited edition, limited quantities, never going to be made again. And so now if you check out his Facebook page on any given week. Almost every week they drop a new exclusive something, it’s a hoodie, it’s a pair of shoes, it’s a beanie, it’s a t-shirt.

And the price points are very high. You’re not buying a t-shirt for $20, the t-shirts going to cost $55 and the hoodies going to be a $130. But the audience knows there’s only going to be a thousand of these made, there’s only going to be 2500 of these made, once they’re gone they’re gone.

Maybe they’re going to be collectible there’s going to be a lot grad in terms of your friends are going to be jealous whatever. And it basically totally conditioned his audience to now understand that everything that Eminem puts out is a high quality, high price point product. Its limited edition and you better act quickly because it’s going to sell out in seconds or minutes in those cases.

Andrew: Let’s look at that on his Facebook page, see if I can bring it all up fast enough. This is his Facebook page, here is pre-order bundles now available including prints of the original written lyrics to Lose Yourself. If we click over and check out the next tab we can see there it is a thousand bucks for this print. Two disk CD and hand signed canvas print.

Ryan: Exactly and this thing is selling very, very well. And this is a great example of there’s very few artist that could put out a thousand dollar item of any type regardless of its signed or not. And not have a massive revolt on their hands or just not sell any.

But over the course of three year Eminem has completely commissioned his fans to know that he’s going to put out this type of exclusive awesome products, and the love it they eat it up. I think this is great example of the importance of sort of understanding that your audience is going to be conditioned to what you price your products at. And if you work hard and you sort of are very intention about it you can build sort of an exception around price that can be very locative in terms of driving a lot of revenue.

Andrew: By the way I thought that Gumroad was just for digit sales I didn’t realize you guys do stuff like this.

Ryan: Yeah, so we’re slowly expanding in the physical. It’s very complicated with fulfillment and all that.

Andrew: Who does the [??]?

Ryan: We just partner with a couple different filming companies. So not in house. Fulfillments not something you want to be involved in actually.

Andrew: No you don’t, it’s really tough.

Ryan: Yeah.

Andrew: All right but that’s good to know. All right and we’ll come back in the end and talk about how the first story that we started telling at the top of this interview with I guess it was … let me see what his name was…

Ryan: Sasha, right.

Andrew: Yeah, well talk about which one of these ideas Sasha used and how well it worked for him.

Ryan: Yeah, absolutely.

Andrew: The next one is to pick that tactics that work for your audience and there’s one person who I know has been doing especially well with you guys Kyle Webster. What does Kyle sell?

Ryan: Yeah, so Kyle. Kyles actually an incredibly talented artist, who does a lot of illustrations for the New Yorker and the New York Times, Time magazine. And his entire career has been doing basically contract freelance illustrations.

Andrew: Is this his work?

Ryan: Yeah, totally. And so he over the course of the last 25 years grew a little bit just unhappy with the current photoshop tool that were available. And so he actually started designing his own brushes. He would build his own photoshop brushes.

I’m not an illustrator but from what I understand like the brushed you use in photoshop are very important and it’s sort of like the type of pencil you use to draw, it’s a thing. And so he decided after maybe five or six years that maybe other people would want these bushes too.

And a year and half ago decided to just put a brush out, and see how it worked. He launched a brush, said hey this is $3 just put it on Twitter, put it on Tumbler and it blew up. He made I think almost a thousand dollars off that brush. By just releasing it and saying, hey all my illustrator friends you can have it.

So fast forward to today a year and a half later Kyle has crossed over $250,000 in total brush sales closing in on $300,000. And now makes more money selling photoshop brushes then he does from his other sort of contract work. Because he doesn’t need to do as much of that anymore. He just does it when he enjoys it.

And what I think is really interesting about Kyle is that there’s a lot of blogs, there’s a lot of articles about how you market product this is how you do it, this is what works. But I think there’s this element of like you have to know your audience, and you have to know what they’re going to want what they’re going to be excited about and what’s going to convert.

And so with Kyle he tried a few different things, he tried doing guest post, he tried building an email list. And does some stuff with email that works decently well. He tried a couple sort of leveraging his press contracts to get a few really, really big, you know, pieces and New York times people like that, and none of these thing really converted. But what he found was that most of his audience, and then most of the other illustrators, were very, very active on Tumblr. And so what he decided to do was just throughout the week he would post different things he was drawing on Tumblr and tons of people would reblog them, which is like the Tumblr equivalent of a retweet and share them and say this is amazing, this is amazing work, and then every Monday, he does what’s called mega-pack Monday, and so he basically gives away a mega pack of his brushes, which is all the brushes he has. He sells them for 30 or 40 bucks.

Andrew: Let’s look at that too. This is his Tumblr page, right?

Ryan: Yeah.

Andrew: And here is what a mega pack looks like, right? Kyle’s ultimate mega pack for Photoshop.

Ryan: Exactly.

Andrew: Let’s click on that. And that takes us over here.

Ryan: Yeah. So that’s his gum road profile. And so what he does, he says, this is mega pack Monday. Anyone who reblogs this on Tumblr will be, or retweets it on Twitter, will be entered to win a free mega pack. And what happens is, you know, if you look at some of these posts, they’ll have like 3000 reblogs of people that want to win. Their friends see it, they want to win. They just get incredible, incredible engagement because people want to win these free mega packs, but then in the posts is a link to his store, and so he’s able to generate a ton of traffic to his store from people that are basically entering to win this thing. It’s not something that I would think about as a main marketing channel for products; I don’t think much about Tumblr. I had no idea that this whole audience exists, but he’s basically built, not his entire business but a massive percentage of his business, on this Tumblr audience.

I think it’s a great example of learning where your audience is, learning how they engage with you, learning how they engage with other people, and then just playing your cards to that and not necessarily spending time on what everyone else thinks will work really well, or your sort of prescriptively says “hey, you should do this”. But just learning what works and then doubling down on that, and I think he’s a great example of how you can be incredibly, incredibly successful, you know, if you find something that works and double down on it, even if it’s not like a conventional marketing tactic.

Andrew: And know what, it’s so much easier than guest blogging on other sites.

Ryan: Exactly. Writing 30 guest blog posts.

Andrew: And hoping that they’ll work. Here, I think this is one of them. I was searching a moment ago, and you can see that people are starting to. There it is.

Ryan: Yeah. It’s just insane.

Andrew: Reblog, reblog, reblog, reblog. And this is the way that he’s promoting it today: “great new pencils for Photoshop designed by Kyle included in every single mega pack. 3PM Eastern, Kyle. Reblog and win. Reblog this post for a chance to win a mega pack of photoshop brushes, yes, the same brushes used by artists at Disney Dreamworks.” Well, great. He’s done incredible work. I mean, just looking at him in preparation for our conversation, I didn’t realize how many places his work was featured. Here’s one…

Ryan: Yeah. It’s amazing.

Andrew: that’s on the Washington Post, on the cover.

Ryan: Yeah. He’s incredibly, incredibly talented. And what’s cool about the story, he’s able to now just do what he loves, which is do illustrations, and he’s not now bound by making sure that he can make enough money from this illustration work. He just does it when he enjoys it, when he’s excited about it, takes projects that he’s excited about it and is able to have a very healthy income stream on the side through his brush sales.

Andrew: Okay. The next big idea is keep pushing to drive ongoing revenue, and I think now we’re going to talk again about Sasha, so why don’t we look at all the points up here. Which of these is the one that helped him get to 300,000 the most? Which of the ones that we’ve talked about so far before we get into keep pushing?

Ryan: Yeah. So the tiered pricing is definitely the one that was the game changer for him. And I can tell a little bit of the story around that, and then also, he did a great job of this last tactic, keep pushing to drive ongoing revenue. He was able to really leverage a lot of cool stuff to keep that revenue coming in after the product launch.

Andrew: So, for tiered pricing for him, he started out with 5.99 ebook.

Ryan: Yep.

Andrew: What did he do to add to that?

Ryan: Yeah. So, Sasha, Sasha’s awesome because he actually was very staunch on how he thought that tiered pricing was not a good idea and very public about it.

So him…

Andrew: Oh, really.

Ryan: …and a few other people sort of had a little, it was like a little thing, sort of in jest but there were some sort of notes of seriousness, and he was sort of very against this idea, and what was awesome is he sort of saw it working. He was working on this new project called Discover Meteor, which is a book on Meteor JS, and he was able to sort of see what was working with this tiered pricing stuff. I was actually jamming with him on twitter in preparation for this to get some data points, and the Discover Meteor book that he launched with tiered pricing has actually done about 10X, more than 10X actually now in total revenue than the step by step UI design book.

What he noted to me, which I thought was very fair, was that it’s sort of like comparing apples to oranges. They’re different books with different audiences. What he did, which I thought was perfect, is he went in and backed out how much revenue he would have made with the exact same number of sales if he only launched Discover Meteor at the lowest price point.

We did the math together, and basically found out that by having tiered pricing for Discover Meteor, he was able to drive 52% more total revenue over the course of a year and a half. Just by having tiered pricing. For those of you that know Sasha and how well he does this, those are no small numbers.

He’s an incredible marketer and understands these things really well. He gave me permission to share his numbers. It’s over $100,000 in revenue from this product that is directly attributable to tiered pricing that he was able to earn as a function of using tiered pricing versus just a complete, flat, one-stop pricing model.

Andrew: Let’s look at what we were just talking about. This is the book?

Ryan: Yeah.

Andrew: If I click on “Get the Book” I can either pick the $29 option, or I can see the $89 option, or the premium option for $179. He’s definitely using that. The next point is you’re saying we should keep pushing to drive ongoing revenue. What did he do after that?

Ryan: I don’t know if you have it. I included a sales graph of him. We did a case study with him, so he gave us permission to prove this. This was done about a year ago. This is his sales graph over the course of a year. May 7, 2013 to May 7, 2014. Just about six months ago. At this point, he had done $240,000 in product revenue.

For most people, what happens after you launch a product is you launch a product, you spend a ton of energy around launch. You do guest blog posts, you do a bunch of marketing, you do ads, whatever. Basically, all of your revenue comes in the next two weeks, three weeks, four weeks. After you’ve hit two or three months after the product launch, for most people, they’re making almost no revenue off their product. They’re already thinking about the next product.

What Sasha did was he very much viewed this book and this product as something that was going to function more like a subscription software platform than a book. He wasn’t interested in just launching this, making as much money as he could, and then moving on to the next product. He wanted to really invest and spend time on this. He spent a lot of time creating it and spent time promoting it and trying to build something amazing.

What you’ll notice is he has the big spike on launch day, which everyone has. That’s what everyone generates. Then you’ll notice that he’s been able to generate consistent sales of several thousand dollars a day. There’s actually a slight upward trend towards the end of the graph where he’s learning what works well, what marketing things are converting, what can we keep doing. He’s been able to drive between $5000 and $10,000 a week in sales, continuously, of this product.

There’s a few things that I think worked really, really well for him. The first being that he is just in general an incredibly hard worker. He spends a lot of time on this, has learned what works really well. He basically was able to leverage the things that were happening in the Meteor community. Meteor is a JavaScript framework, for those of you who aren’t familiar. JavaScript framework, it’s being updated constantly. There’s new things happening, news coming out.

What he did was he leveraged all these things that he could add as updates to the packages. A new version comes out, he’s able to record a new interview, whatever it might be. He adds these to the packages, and then he leverages those as marketing opportunities. He’s continuously working to add more things to the packages, to add more value.

He’s able to blast out to his list and say, “Hey, just added these four things. It doesn’t look like you’ve bought it yet. We’d love to have you pick it up today. It’s much more valuable than it was a week ago, and we’ll keep adding cool things.”

The interesting approach that I think he took to the email piece of it is a lot of us, if you launch a product, you immediately think, “Okay. I have this big list that I built up with opt-in forms, getting people primed for the product. I used drip marketing and I launched the product. I emailed everyone a couple times, but the launch is over now. Let’s just merge those two MailChimp lists. Those people will just be on my regular newsletter now, and we’ll go from there.”

Sasha didn’t view it that way. Sasha viewed everyone who was on that pre-launch list as an opportunity to make a sale and a sale he needed to earn. Anyone who makes a purchase is removed from that pre-launch list, but everyone else on the pre-launch list is still, to this date, getting emails that he’s writing, that he’s sending and saying, “Hey, here’s things we’ve added. Here’s some cool news in the Meteor community. Here’s a few snippets of the book. Here’s some new content you can check out. We’d really love to have you make the purchase, buy it”, whatever, basically still getting marketing emails, and he would use the outcome as complete binary.

So either these people are going to buy the product, or they are going to unsubscribe, and there is no in between. So he is able to drive all of this ongoing revenue because he is still using drip marketing a year and a half after launch, which is unbelievable to me, and it is awesome, and it makes so much sense. But I think it is easy to just, it is not necessarily laziness, but you just think, “Okay, the launch is over, there is no need to keep doing this.” But I think what you see is, you know, literally, he has been able to earn, you know, hundreds of thousands of dollars now, as a function of still keeping the pedal on the gas, and still, you know, being able to drive a lot of these sales through things like drip marketing, updating the product, all that kind of stuff.

Andrew: That approach really appeals to me, because I interview authors all the time who write a book, and once they are done promoting it, they are onto the next thing, and it is like they forgot about those old ideas.

Ryan: Oh, totally.

Andrew: They are gone.

Ryan: Yep.

Andrew: Well, this makes so much sense, and like you said, you learn more about how to promote, you learn more about how to sell it, you learn more about what to say to people, how to make it useful. That makes a lot of sense to me, and I am glad that he is doing well. Can I say the revenue number that he has for what he is doing per day now?

Ryan: Yeah, totally.

Andrew: Okay, I have it in my notes here, he is at about a thousand bucks a day right now.

Ryan: Yeah, he is doing amazing.

Andrew: That is fantastic. Alright, onto the big board for the final point, which is to use concentric circles of people hearing about your launch.

Ryan: Yeah, so this one, I think we talked about briefly. You know, there is not a ton to say on this. I think the main point here, I think, is to think about, you know, everyone has their core audience, which are people on their email list, people that are, you know, following them on Twitter, and really engaged there, people that read their blog on RSS. And then we have sort of a larger circle which are people that maybe occasionally read the blog, occasionally, you know, check out Twitter or Facebook, and then there is sort of a larger circle which is the people that are sort of generally interested in the things that I am writing about.

Maybe they follow other bloggers that are interested in what I am writing about, maybe there is some overlap there. But there is sort of these circles of engagement, and I think when you are thinking about a product launch, or you are thinking about even just building an audience, thinking about how you are targeting each of those circles is really, really important. And I think, you know, one of the reasons advertising works so well, even for huge, expensive products like cars, you know, wedding rings, things like this, no one is expecting, like Toyota is not expecting me to go out and buy a Corolla because I saw one television ad, and I am immediately thinking, “Okay, well, I will go spend, you know, $25,000 on a Corolla.”

They are thinking that I am going to see a television ad, I am going to see another one in two weeks, I am going to see ten more over the course of the next six months, two of my friends might get a Corolla, I might test drive it with them, I might like it, and then my car breaks down, and I need to go buy one, and I am thinking, “Oh, the Corolla is cool.” So the whole point of advertising and marketing even is getting people to have multiple touch points with your product, multiple experiences with it, and I think often with product launches, it is easy to think, well, I am just going to blast my email list, tweet a couple times, and then you know, I will be good, and the people who will to buy it will buy it.

But you know, especially for people who are not in that core concentric circle, for people that are outside that in your sort of larger audience or people that are just fringely involved in your audience, it is going to take multiple touch points, multiple times of them being exposed to the product for them to actually make the purchase. And so, when you are thinking about, you know, whether it is guest posts, whether it is getting people to tweet and Facebook about it, whether it is getting people to do, like if you are doing a joint venture deal, and having someone email their list, thinking about those circles, thinking about where people are targeted on those circles, and having different approaches for each of those, I think is really important, and understanding the idea that people need to get hit multiple times with it.

And you know, the chance of you tweeting about something and saying, “hey, you know, this is the guy I interviewed on Mixergy, he just came out with a book; it is really cool.” I might check it out, maybe I will buy it. But if you tweet about it, and then I get an email from a friend saying, “hey, this book is really good.” And then I see another tweet about it, I am much likely to then make the purchase.

Andrew: That makes sense. This has been fantastic because it is all usable, it is all practical, we do not have to do every single item on the big board that we talked about today. We can pick one or two of them, and apply those, and then go back and get more.

Ryan: Totally.

Andrew: I especially like to hear about how Sasha was against one of these ideas, ended up using it, and today he is open about how effectively it worked for him.

Ryan: Yeah, totally.

Andrew: So the company, of course, is Gumroad. Is the best place to follow you, is it your Twitter account?

Ryan: Yeah, Twitter, or my personal email is just the letter “R” at Gumroad dot com.

Andrew: What is a good…

Ryan: Yeah.

Andrew: What is a good contact for you?

Ryan: For email?

Andrew: Yeah, I mean, what kind of email do you want? I do not just want to ask people to hit you with email and flood your inbox.

Ryan: Anything I can do to help. Seriously, I give out my email publicly, it is in my Twitter bio, whatever, if you have questions…

Andrew: I have got it right here.

Ryan: … About any of this stuff, anything we can do to help, definitely feel free to hit me up. And then we also have a resource center where we share a lot of these types of, you know, key studies.

Andrew: Where is it at?

Ryan: If you go to, let me get the URL for you. It is

Andrew: Alright, let’s see, resource dash center, and I see my typo there, I will fix it right now, real time. There it is.

Ryan: So, interview with Chris Guillebeau, a bunch of case studies. There is a case study on Sasha, a case study on Kyle Webster, who we mentioned…

Andrew: Mm-hmm.

Ryan: … A bunch of sort of guides on how to build an audience, marketing strategies, all that kind of stuff, so a lot of things that we talked about are highlighted here. Hopefully, you know, super valuable information.

Andrew: Yeah. This is really well done. One of the things I always admired about you guys at Gumroad is your design. It is just so…

Ryan: Yeah.

Andrew: It is so beautiful, easy to read, and incredibly helpful. Thank you so much for doing this.

Ryan: Absolutely, thanks for having me, Andrew.

Andrew: You bet. Thank you all for being a part of it. Bye everyone!


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Andrew: This session is about how to write better ads. It is led by the great Perry Marshall, founder of Perry S. Marshall and Associates, which consults both online and brick and mortar companies on generating sales leads, web traffic, and maximizing advertising results. He, of course, is the author of this great book that I hope many of you have read. If you haven’t, go grab it — “80/20 Sales and Marketing: The Definitive Guide to Working Less and Making More.” Perry, welcome back. It’s good to have you here.Perry: It’s good to be here. When I was on before, I got such a great response. You have a very passionate audience which I love. There are some hosts of shows where their audience isn’t very passionate. I like it this way!Andrew: I want the fiery people! And I keep encouraging them to let guests know if something worked, helped, or touched them. So let’s give them something really good today.To help the audience understand what they can do with today’s topic, let’s start with these stats that came from a gentleman named Ben Garelick [SP], who was in one of your hot seats. What’s a hot seat and where was Ben when you started talking to him?

Perry: I do this thing called a four-man intensive. It’s two days, four people in a room, and everybody gets a half-day hot seat. That means it’s all about you, it’s all about your business, everybody in the room is focused on you. They’re all from completely different industries which helps the cross-pollination of ideas and it’s all about making your business better. In fact, we did this session a couple of different times and one of them is in our AdWords copywriting express product.

Andrew: So these stat examples are before you got started, right? He was basically doing 5% click rates.

Perry: Right. If you read the ads…Rock Climbing Courses, Develop Climbing Skills Rapidly, Schools in Europe, Spain, they’re pretty typical ads. Then look at what we came up with using our particular methodology. We got the 5% up to 10-12%. These new ads are burning with personality — Mountaineering School: Born-College-Job-Marry Spouse-Kids-Retire-Die. Want More?

This came from really digging into who comes to their mountain training school. When do they come? Why do they come? I found out these are typically guys that graduated from college. They’ve been working under buzzing fluorescent lights for the last three years and it’s killing them. They realize that if they don’t do something interesting, they’re going to be like their Dads. They’re going to be overweight, die of a heart attack, or die of boredom.

A whole story started to emerge and I came to understand there is this whole culture around mountaineering and this was really what Ben was selling. We dug out that message and had a clever way to just rotate through the combinations. There are enough boring companies, boring ads, boring people in the world, so let’s jack it up with some excitement. That’s what we did. In Google AdWords, if your average, it isn’t no fun. In Google, 2% of the advertisers get 50% of the traffic, that’s fact. What are you going to do to be in that top 2%? You’re not going to get there with a ho-hum message. AdWords is very competitive.

Andrew: That’s what we’re going to get into here. How to avoid that ho-hum, add emotion, and bring in people beyond the person you’re hoping to click and use them to help get more clicks.

I just want to read one more before we move on to the big board of ideas which we’ll be covering. I thought these were so creative and well written. Here’s the one that’s right smack in the middle. It says: Mountaineering School — that weak, sniveling voice in your head begs you to quit. Climb on. Here’s another, masochist spa is the headline, I don’t think I need to read anymore and let me see. Works sucks? I unzip my tent. What’s your commute?

So, really, full of emotion, full of heart, full of passion and that’s what we’re going for here. Let’s take a look at the big board and see how we’re going to get our audience here today there. The first big point that we’ll talk about is to use the little comma that could to boost click-through rates instantly and I think I’ve got an example of it here. Is this it?

Perry: Yes. It is. It is.

Andrew: What is the little comma?

Perry: All right so these six ads, if you could look inside of the google account, what you would see is that even though all these ads are pretty similar to each other, the worst one is about 1.3% and the best one is 4.3 and the second best is like 4.2 or something like that.

Andrew: OK.

Perry: And it’s, so the best ads here are actually the upper left and the upper right. Actually no, it’s the upper left and then the second one down from the left.

Andrew: Ah, okay. Mm-hmm. Sorry, I’ll let you explain it.

Perry: Those were the best ones in the pack but the one on top, the only difference between these two ads, is that one comma in the first line. How to write a book fast versus how to write a book, fast. Now that one comma actually made an 8% difference in the performance of the ad, as far as how many clicks it got you, how much it cost to run the ad, is 8% better and I call it the little comma that could. Okay? And, what is that about? That is about the fact that human beings are extremely sensitive to copy.

Andrew: Mm-hmm.

Perry: They are extremely sensitive to language and you only really fully realize this when you go out there and you start testing stuff and we did this and in this particular account, that comma is probably worth 500 bucks a year. On a not terribly, you know, high-traffic set of keywords. And so, like, yeah, one comma could be worth 500 bucks a year and so it pays to invest in your copyrighting education, right?

Andrew: Mm-hmm.

Perry: You know, why is that? I think it’s because of rhythm. You know, the ad has a little more pizazz.

Andrew: What should we be taking away from that? Is it that add a comma at the end of all of our, before the last word of every one of our copy or is it something else?

Perry: Well, actually, there’s two points. One is, it’s not about the commas per se, but it’s the fine touches. The little things really do make a difference.

Andrew: I see.

Perry: Okay. And we know it’s true when we listen to our favorite music. You know, you just love them, the exact way that guy did that little flourish on the guitar before, you know, they went to the second verse or whatever. These little things matter a lot but there’s actually a bigger point, which was that people actually get mired in the little stuff and they become unable to look at big stuff, which is the real point of the conversation I want to have with you today. Okay.

Andrew: Mm-hmm.

Perry: It’s not very hard to come up with a list of little things you could, well do we say tomato or do we do tomato. Do we spell the word nine or do I use the number nine and you know you can like do all these kinds of things but there’s a much larger point and here’s what it is. So…

Andrew: Mm-hmm.

Perry: You know, I taught hundreds of thousands of people how to write Google ads and you know you could buy our Google Ad Words book on Amazon and all of that but what I learned was that people almost always, they get an in ad-writing rut and what happens is they try some things and they find something that seems to work like “Write A Book Fast, 14 Days From Start To Finish.” Boy, people seem to click on that. Then they start optimizing it and they get it down to commas and then when they’re done with that everything else they try bombs out and they get stuck and they’re like boy I think there must be some way I could write a better ad than this, but I can’t come up with it and every time I try stuff it hurts my overall performance.

I’m scared of Google because of the mighty G, and then they just peak up. I had to find a way to get around this. So that’s why we came up with the Swiss army knife concept. We’re going to talk about that. Because you need a way to break out of a creative rut and come up with something completely new. Not only that, to be able to rotate through a whole range of completely new things that are all valid.

Andrew: I see. So what you’re saying is, those little flourishes will help you, but we want to go beyond that and have a Swiss army knife like tool that will allow us to make big dramatic changes with just a small tool. Those are some of the things that we’re going to be talking about today. The Swiss army knife is your way of expressing I think it’s 17 different approaches to change in copy. If someone is in a rut they can just go through that Swiss army knife and say, “All right. Let me try number one, number two or a collection of them.” We’ll talk about some of them here today.

Perry: Right.

Andrew: All right. Let’s move on to the next view point which is to write about people related to your customer. Here is the typical ad for a topic that’s kind of painful. There it is. This is what people will see when they search for divorce, or separation, or phrases like that here. I’m just going to slide it down so we can see the sponsored links. This is what we see on the right side of Google search results. This is not what you want us to do. Why not?

Perry: Well this is very typical. I typed bad marriage into Google and this is exactly what I got. This is very typical of any industry. We could have been looking for plumbers, we could have been looking for IT professionals. What we would usually get, we would get boring ads, they’re just the Internet version of been in business since 1993, family owned, commercial and residential, just really boring. I got inspired because I was writing ads, and I was typing in these key words and that one afternoon this friend came over and she was right in the middle of a divorce. My wife and I were like her shoulder to cry on. She’s a brand new single mom and you know the story.

So what does the single mom talk to you about? Oh, and he did this and he did that and guess why you’re sad. I’m like these ads are not speaking to the real stuff here. How do we get like. . . come on let’s call out the elephant in the room. We decided we needed a set of relationships in the customer’s life that would apply to any customer in any situation buying any product. We can up with Boyd One of the Swiss army knife.

Andrew: That related here. I think I’ve got a screen shot of it. This is available on your site.

Perry: Yeah. So this is the simplified version. We got the customer.

Andrew: And what they did in the ads we showed before was talk about the customer directly.

Perry: Right. They would talk about the customer or they would talk about the advertiser like, Rhonda Callaway, LCSW. The ad was usually about the advertiser. Well that’s the most boring thing that the advertiser can talk about because that doesn’t involve all the dramas in their life and so this is the simplified one. So a thing that your customer loves. Come up with a list. A person with a bad marriage. What do they love? Well maybe he would really love a weekend in a spa and a Jacuzzi, and spend some time together and make love and everything except they’re fighting too much so they can’t do that. You put a thing your customer hates while I hate going on a weekend trip and fighting with my spouse all weekend, your customer’s worst enemy.

Well, how about the other woman? I heard a bunch of stories about that when my friend was going through a divorce, you know. Who’s her best friend? Maybe it’s her kids, right? Maybe on some days the customer’s best friend is her husband. Maybe on other days, he’s her worst enemy, and we start writing these things down. And so the whole idea of the Swiss army knife is that we’re going to connect things together, almost like at random, and we’re going to write an ad about it.

Andrew: Let’s take a look, here’s what it looks like when we do that.

Perry: Bad marriage is constant fights. That was one of the things they put on the hate list. Don’t go to bed angry. Fourteen minute video will calm your mind. Or the best friend was your husband and the enemy was his lover. Who is your husband with? Is he sleeping with her right now? Get revenge and a smile on your face. Right? Well, now did we not call out the elephant in the room?

Andrew: Yeah.

Perry: Are we not truth telling? Now I want to be careful. I’m not guaranteeing you that if you write these in-your-face ads, which are really fun to write and really funny to read, I’m not guaranteeing you that this is the exact right approach. You may need to take that 10 and dial it down to a three or a four. You may need to use innuendo instead of being so direct. You can shade it all kinds of different ways, but the point is we’re getting the issues all out on the table so that we can then very easily write a whole bunch of completely different ads. They’re all guaranteed to punch the emotional button that is making them search in the first place. Because why are they searching?

What time is it? It’s 11:21 or it’s 1:00 o’clock in the morning or whatever, and they’re in pain. Why are they in pain? Do they want to hear about someone’s LCSW? Oh, you’re a licensed clinical social worker. Well!

Andrew: Now when you bring that up, I’m taking a look at this, and yeah it does look ridiculous! No one cares about Rhonda Calloway at that point.

Perry: And God bless her!

Andrew: Yeah, nothing wrong with Rhonda, but you’re right, that’s not what someone is thinking about. Here is what they are thinking about. Look here are two more examples. Nasty fight, the other woman sick of being compared to her, change the game free report. Or here’s another one. The other woman: stepmom. How will you feel when your children call her “mommy?” These are examples that are really 10. They’re really hitting you in the face. You may have to dial it down, but the point is still absolutely relevant which is to say, think about the other people in the person’s life, and you gave us this chart as a way of thinking about and prodding us.

And this is just a screenshot from your site. Most people will think about – here let me do this, use my handy teletrainer. Most people will do, yes themselves, or their customer. You are giving us so many others to think about that are more interesting. And I think I should put away the teletrainer. Oh, one more! Here we go.

Perry: And then all we have to do is draw a line from one of those circles to another one, and pick two things and write an ad, right? Now this is just the crude first step, but that’s all we got to do. And it’s like, well, alright, so I wrote an ad about that, so now move the line and pick another circle and then combine those two things and write an ad and all the sudden, now, you’re on your way of never running out of things to test. And you know, we’re not testing commas anymore. We’re testing entire dramas that have gone on in the person’s life and which one really resonates. And that’s what we did with Ben. With his mount training school.

Andrew: Yeah, let’s look at that with fresh eyes.

Perry: Tell me about your customer. What do they love? What do they hate? Now if you look at these ads and you go, “Well, you know they probably love their spouse and maybe they hate their job and maybe their commute. “Well Ben, when people get out on the mountain with you, what do they complain about there?” “Oh, you know, hanging on the edge of a cliff. They complain about that. Sleeping in a tent for six weeks. Living on a glacier. And it’s also like the most exhilarating thing they’ve ever done in their life and they come back a changed person.” He tells me they usually come face to face with their manhood, their womanhood, their mortality, they’re probably sobbing on the edge of a mountain somewhere for a little while and they hold themselves together, you know and he’s telling me all this.

I’m like dude. He’s not making this up, all right. He is totally sincere. In fact the problem is his ads did not reflect his real passion. I mean, if you meet this guy, oh my goodness, you know. Andrew, I’m warning you. If you go meet Ben, he might talk you into quitting Mixergy and like being in Patagonia for six months.

Andrew: Living in mud and actually or snow in Patagonia out of a tent. That’s not such a bad idea actually. I love Patagonia.

Perry: So yes, it’s like what’s the real story? There’s always a story. It’s always more interesting than the boring ad that some assistant came up with.

Andrew: All right. On to the next big point which touches on something you mentioned a moment ago. The next one is to write emotionally and you said earlier that this friend of yours was going through a divorce didn’t just talk about it in logical bullet point ways but she talked about it in emotional ways. She talked about it from a very personal point of view and you’re saying we should match it. What is the mistake most people make when they go over or below and how should we match?

Perry: Well, long ago a guy named Robert Collier said enter the conversation that is going on inside your customer’s head, okay and you actually want to match it in content and in tone, okay. So what is she thinking about? If she is thinking about her children’s new step mom and hey got more toys for Christmas than they got from me. Okay, if that’s what she is thinking about you need to talk to her about that and you need to talk to her about that the way that she talks to herself or the way that she talks to her friends about that and so that means you do need to match the intensity. Andrew Goodman, he’s one of the other great ad words guys, he said it’s the Goldilocks principle. Not too hot, not too cold. Just right is what you actually want. Totally right about that and so you can dial that down.

You can go, well okay. Let’s talk not as blatantly about this but let’s still get the message across and also about emotion. So by training I’m an engineer and honestly, maybe this is a confessional. When I write ads, I tend to … when I write in general, I tend to start with logic and I tend to lay out a logical structure but what I personally have to do is, I have to flip it around so I’ll write something and I’ll go . . . well, he did this and she did that and I kind of sound like a newspaper reporter and then she burst into tears. And I’ll eventually get to the emotion and what I have to do is when I’m done I have to turn it upside down and I have to go … so she burst into tears, right?

Andrew: I see. Yes. And then she . . .

Perry: And then I tell why she burst into tears and eventually we find out the whole story but I’m going to start with the vase shattering and the flowers smearing all over the couch and the water dripping onto the floor and she’s screaming at him and he is defending himself and he’s checking his cell phone, right. And then we’re going to find out why and again, as an engineer, I just have to do that backwards. Some people naturally, they’ll start with the emotion first but it just depends. But I can tell you this. People buy based on emotion and they back it up with logic later and frankly it’s true when people buy a Starbucks in the morning and it’s also true when a venture capitalist gives you three million dollars. I mean, I’m telling you, this is how human beings are. Sometimes the logic is a bigger part of it and sometimes it really is spreadsheets and stuff but not usually.

Andrew: Yes.

Perry: Not usually.

Andrew: I like that upside down approach. I’m trying to think of it for my own audience too. That what did they do and what happens next? What happens after that and where does that smash in the wall happen that I need to bring up and that’s where I should be starting. You gave Jeremy in the pre-interview a list of these emotions. How do we use these?

Perry: Okay. So there’s an amateur way to use them and there’s a pro way to use them.

Andrew: Okay.

Perry: The amateur way is anger, joy, disgust, blah blah, anticipation and then they would just put those words in the ad. Are you angry about . . . okay that would be the amateur way and it could work but the real professional way . . . tell me a story or give me a snip of dialogue that expresses anger so like one of the best copyrighting books ever is ‘On Writing’ by Stephen King. Okay. Should be a surprise; not exactly a copyrighting book but a great book about writing and he explains that when you write fiction almost everything, almost all the action of the whole entire book is in the dialogue.

What does the clown that eats children for dinner say to Billy when he meets him in the Stephen King book, right? It’s the words that come out of his mouth so if you’re real pro, give me even half a sentence that the angry woman says to her husband, right, and if you don’t know, call up one of your divorced friends and ask and be prepared for a 45 minute conversation in which you will get years of material.

Andrew: So I’m thinking about someone in the audience who might have an app that allows designers to create better proposals. He is there to solve a problem of a designer just wants to design and not create proposals. What he should be thinking of is the pain of a customer who doesn’t send a proposal and then maybe the internal dialogue I could image of why didn’t I send it out and I allowed that guy who is the worst designer to take my job and start with that and include that phrase instead of you’ll be angry if you don’t send out proposals right. Use the statement of someone who is that angry. Show them. Don’t tell them.

Perry: That’s right. Start with the agony and work backwards. Start with the ecstasy and work backwards. Whichever way it is that’s what you want to do.

Andrew: All right. Let’s go on to the next big point here that we wanted to bring up which is to use proof to write high click through rate advertising. I’m looking here in my notes. Everyone you say has some kind of proof and you have the story from a Belgium chocolate company. Belgium chocolate story.

Perry: Okay. So I had this guy at one of my intensives and he had this website. It was “We’ve got the best Belgium chocolate” and I’m like, well that doesn’t really demonstrate anything. So here’s what I am looking for. I want you to tell me how you took your entire vacation and you drove all over Belgium until you found this one guy and he goes oh, oh, oh, that’s what happened and I’m like, okay, so what happened? He goes, well I did take my whole vacation, or holiday, because he was from Great Britain actually and I took my whole holiday and I drove all over Belgium and I found this one town and I walked into this chocolate shop and I bought some chocolates. I ate the chocolates.

And oh my goodness it was oh man these were so good and by the way they were because he brought some samples and he shared them with us and my whole family devoured them in about a day and a half. He goes I asked the owner and the owner comes and I go these are great chocolates. What do you do for marketing and that guy goes marketing? I don’t do marketing. I am an artist and I make the chocolates and I put them in the window and some people come in and buy them and some people don’t and I don’t care. Get out. Don’t talk to me about marketing. The guy literally kicked him out. He keeps coming back like the next day and the next day, he keeps coming back. Finally, okay. I will let you buy these and we can ship them to England.

Well, that story, all by itself, is a form of proof that all of the adjectives in the world can’t replace because don’t tell me, show me. You can still show through a story.

Now, maybe another kind of proof might be I remember when I was a kid, I had a Tonka truck. I got this little Tonka truck brochure and it had a picture of a car parked on the top of the Tonka dump truck. It’s like, this holds the weight of a Gran Torino. I still remember that, even though I probably was five years old when I saw that. That’s proof.

So many times, people, they don’t have any. The usually have some, but they don’t use it. I think as much as possible you should start with it. Why not right a Belgian chocolate ad that says I spent my entire six week holiday scouring Belgium, and this is the oddball character I met. Now, that’s an ad. Really, tell me about that.

Andrew: I tend to think of proof as statistics as data. You’re saying a story is proof too.

Perry: Well, yeah. I absolutely believe in statistics, and data, and case studies. Our Swiss Army knife product has a whole list. But you got to demonstrate. However you can, you need to demonstrate to me the truth of what you’re saying.

Andrew: You know what? That’s the way we start these programs. I specifically asked you for the story of the guy who sold training on mountain climbing. That’s how we started because I do think the audience says, “Who is this guy? I know Perry Marshall, but I don’t know that he really has the stuff.” By showing an example, by telling a story of how you fix someone’s business or someone’s ads, we get to convince the audience that they should trust and pay attention.

Perry: Right. Isn’t that more interesting and more persuasive than saying I wrote the number one Google AdWords book?

Andrew: Yes. Strangely, writing the number one Google AdWords book is much more meaningful, but people don’t pay as much attention to it, and they don’t remember it, and they don’t go back later on, thinking about the specific ads.

Perry: Right, because in the Swiss Army knife blade one, that story’s about me. They want a story that’s either about them or somebody just like them. Well, I don’t run a mountain training school, but I do run a hypnosis thing. My ads are boring and I’m not sure how to write exciting ones. Well, okay. Let’s go down the rabbit hole and we’ll teach you how.

Andrew: What if someone’s new and just getting started, and they don’t have that kind of proof? They don’t have that story yet.

Perry: If your product is worth selling, there must be some way that you know that it’s worth selling. 90% of the time, there is a story. If you go, well, all right. I don’t have these case studies, and I don’t have this poof, and we just developed this product, and it’s brand new and I haven’t even sold it to one person yet, there’s still a story of why did you spend the last nine months of your life pursuing this? What convinced you? Why did you spend three days walking the trade show in Hong Kong until you found this one crazy little widget that does this super special thing? Why did you eat bad dim sum and whatever else, and then fly 13 hours to get there?

At some point, it’s going to tumble out. Any good copywriter knows this, that there is this point at which the real story starts to come out. It’s like you’re an excavator. It’s like you’re an archaeologist. You’re digging. Oh, no. There, see? There’s the tile floor in the temple from 2,700 years ago.

Andrew: We do that all the time with guests who we interview about how they built their businesses. It’s amazing how they forget the reason why they did it and the importance of it, and that’s a big reason why someone is going to even pay attention to the interview.

I just did an interview with this woman who built a $2+ million a year business selling capes for children and, you know, all the related things that go along with it. But apparently this is a big business because kids love capes and they love tutus and so on. And her origin story was she made these capes at home for her son’s birthday party so that her son’s friends can play with the capes and then take them home and remember they had this great thing.

And other parents saw it and said we would like it too. And then she started literally sewing at home and so on. How do you not pay attention to a housewife who comes up with this idea that way and builds up her business all the way to the top? I get it. So that’s exactly what more of us need to think about when we’re marketing and frankly I would even say as entrepreneurs and business people we’re not doing enough of it. And great point.

Perry: Right. How did you prove yourself? There’s another thing about that story you just told. That is the way that the best products organically come into existence is somebody just needed a way. So, wow, let’s give the capes for the birthday party, and then they accidentally find out, “You know Billy has been like, you know, jumping around in the backyard with that cape for the last two months? It’s like his favorite toy.” She’s like, “Well, I’ll be darn. It’s great” as opposed to, you know, some of us get all cerebral and like, you know what? I have this invention. I think . . .

Andrew: Yeah.

Perry: You know, right? And in those deals, there isn’t a story, like it doesn’t exist and like probably you should run the other way.

Andrew: [laughs] Even in those situations then, what I would think of now that I’ve learned this approach from you, I would think, “Do they have a customer who had this kind of issue, a customer whose family was just expecting another boring party and they bought 10 capes for the 10 friends who were coming over. They gave them out, and the next day everyone who came to the party was flying around with the cape around the school. That’s the kind of thing you’re talking about.

Perry: Yeah. Right.

Andrew: All right. Let’s go on to the big board here. And the next one is to use direct marketing offers and . . . I think it’s been a while since we put this together. I’m actually reading the notes myself here. One of the things here is we do a lot of prep beforehand, and we have this big outline that we’re going through. And I read it before we start, but now let me read it right here because I forgot this one.

I change the offer on the landing page that increased the click rate. It was my control ad for selling my Google ad course. We changed it to an ad cheat sheet on the landing page, and the click rate went up 33% overnight. What’s the page exactly?

Perry: So this is a little old, but it’s still completely relevant to anybody. So this was our “Five Days to Success” Google AdWords free email course. And for a long time we were just saying, you know, “Sign up for this email course and every day for five days we’ll give you a really great tip for AdWords. And so, you know, we did what I was describing earlier. You know, we come up with all of these different wordings and everything. We finally come up with an ad. We just can’t improve it to save our life. It’s really good, but surely we could have made this better.

And then finally, you know what? Let’s change what they get. And so we added a cheat sheet. We added this one page cheat sheet on the landing page, and then we said we just changed the ads to promise they get a cheat sheet. And like instantly everything went up 33%. The cost of customer acquisition went down like what, by a quarter or something like that.

All of a sudden it’s basically we’re at 125% or 130% of where we were, and here’s the point, okay? This is not about cheat sheets or like any one particular thins, okay? Here’s what I’m really trained to drive at. What I’m trying to drive at is that whatever the person gets from you for engaging with taking the next little baby step after they click on the ad.

So I don’t care if it’s a quotation or a free consultation or a free sample or a video or a software tool or some way of grading yourself or whatever. I don’t care what it is. But can you up the ante on whatever that is because, you know, what people will, people demand more in exchange for their email address this year than…

Andrew: Mm.

Perry: …they did last year. Okay? And you’re, if what you’re giving away is good and appealing, you should be able to describe it in a Google ad in such a way that it makes a person salivate and so that’s what I mean direct-marketing offers like, you know, there’s a lot of classic things that people do…

Andrew: It gives a list of them. Here are some of uh, here they are. All right, guarantee free sample, no obligation, given them software, add a deadline, OK, disqualification, percentage discount. I’m just reading some of them, percent to charity, given them membership, reports, white papers, audio/video and accompanying offer. That’s the kind of stuff that you want us to think about. Think of it as a menu that we can go to and pick something to add to our audience, to give to our customers.

Perry: …yep. Sweeten the deal and then that automatically makes, I mean, when you have a really sweet deal, it’s easier to write an ad.

Andrew: Mm-hmm.

Perry: And if you’re having a hard time writing an ad if you’re like staring at Microsoft Word blank screen trying to write an ad, it probably means that your offer is really milk toast.

Andrew: Mm.

Perry: I learned this a long time ago. I was trying to write an ad for this laundry detergent and like there wasn’t anything to say about it. It was like, and this mentor of mine, he’s like nobody’s lying awake at night thinking about this. Like go find something to sell that people are worried about.

Andrew: Mm.

Perry: Like, oh. You know and there’s a lot of boring things out there. Don’t sell boring things. Like the world doesn’t need another boring thing.

Andrew: That makes sense. The world does not need another boring thing. Um, on to the next one. And you know what, though, I think about that from a distance and say our world doesn’t need another boring thing, but when it’s time for me to actually act, too many times I think, let’s play it safe or I don’t say let’s play it safe, I say you know what? I like Perry Marshall. I want him to like me. I want us to do, I want this to do well. Let’s just be really nice about and it and instead I should not be especially nice. I shouldn’t let go like before we started, I said I like my audience I don’t want them to think that I’m peeing on camera. So I’m going to pour my water [??] camera like this. I should have just done that on camera. I should have told them, hey guys I’m not going to the bathroom right now. I’m actually just pouring water and take that dangerous road.

Perry: Yeah.

Andrew: It’s been that dangerous. [??] On to the next big point. Squeeze multiple ad elements into an ad. Yes, you give us the Swiss Army knife full of different ideas but you’re also saying pack them in together. You can talk about both relationships and create a disqualification or talk about relationships and have a deadline.

Perry: Mm-hmm. Yeah. The best copywriting, the best writing, I mean I don’t care if we’re talking about Stephen King or John Carlton or, you know, whoever the famous copywriter is. The very best writers pack a lot of emotion and a lot of content into few words.

Andrew: Yeah.

Perry: Okay? And so the thing about Swiss Army knife is like well, you know, you’re looking at all these little elements and ingredients and I’ve got this ad and it’s alright. Its, you know 120 characters long. Without adding any more characters, can I pack some more emotional punch into this? Can I pack some more elements into this? And you almost always can because, you know, that density of communication, I mean, that’s what’s going to get people’s attention. It’s what makes ads leap off the page. It gives them that slight edge. You know, you’re looking for that slight edge against everybody else.

Andrew: I’m trying to think of, has there ever been a business where you just couldn’t make it interesting? Where you just, and then, I’m trying to think of like a tough example that you still found a way to pull through. I guess divorce is, for some reason divorce now seems really easy. Oh yeah, of course, that’s got a ton of emotion but that would’ve scared me away.

Perry: Okay, let me take that one since we’re on that subject. I was actually at, I was speaking at one of Sandi Krakowski’s conferences and she had this woman who does marriage counseling. Like that’s her business and we were having this whole conversation about okay, how do you charge more? How do you raise your fees? How, you know, and I’m actually making the woman a little uncomfortable. It was like well she really does want to make more money,” but whenever it’s like, “Well, I’m going to charge YOU, for advice.” Like if a marriage counselor is comfortable at $65 an hour, then raising it to $120, will make them squirm.

Andrew: Mm-hmm.

Perry: Right? And I said, “So, so try this on for size.” I go, “All your other therapist friends, they all just charge by the hour, right? Right?” And I said, “Isn’t it true most of- they’re all afraid they’re going to offend the client, so they just sit there and play patty cake and they kind of, they pussyfoot around the issues and it takes three weeks to like, get into anything serious. Right?” And she goes, “Yes.”

Andrew: Really?

Perry: Yeah! She said yeah, that’s normal. You know, like, it’s like their letting the clutch out, right? [??] Well, I said try this on for size: you sit down with a couple and you have an initial consultation, and you say, I don’t work the same way everybody else does.

Here’s what I do: I take on your complete marriage for- I said pick a time period- for six months, for a year, and I say we’re going to work together for the next 12 months and it’s going to cost you guys $5,000. And we’re actually going to put half the money in escrow. And if you do all the homework assignments that I give you then, you know, Mrs. Jones, if he isn’t treating you like a lady, you know, if this isn’t happening, that isn’t happening, then you know, I’ll return half that money to you. Mr. Jones, you know, if you guys aren’t making love, and if she’s not- you know, if this hasn’t happened, you know. But I’m going to expect you to do your part and that’s how I work.

And I’m not going to sit here and just do this hourly thing and, you know. Like, you already know if you like me or not so you can decide, but I’m not going to just, like, have you come in four times and then disappear and me never have any idea where you went. We get together, we get results. Now, I just applied that to marriage counseling. You realize how many, how many service companies, how many products, they don’t actually guarantee any kind of actual end result, they don’t have any skin in the game. Do you realize that if you change the deal that way, you might be able to charge three times more money than everybody else? Why? Because you deliver certainty and all they do is play patty cake with you for one hour at a time.

Andrew: I see. And that’s just one tip from earlier that we talked about. Which model- that was in the used direct marketing offers.

Perry: Yeah.

Andrew: So bring in that guarantee to a place where other people aren’t offering guarantee and you can increase your prices dramatically, but also be that much more valuable to people.

Perry: That’s right. And I almost always find guarantees end up needing to be 2-way streets. The customer almost always has to do something in order to be sure, you know…

Andrew: I was going to say because if not for that, then the clients will come in every week and just wait to get their money back, and not- and feel almost like they’re going to be rewarded if they don’t do anything, rewarded if they don’t get back together, because if they don’t, they get back $2500.

Perry: Right, right.

Andrew: So you’re saying, it has to be both ways. Both people have to have skin in the game.

Perry: Yeah, and it’s like, Mr. Jones, Mrs. Jones, you BOTH have to want this. Okay, I’m not going to counsel if one of you wants a good marriage and the other one wants your $2500 back.

Andrew: Yeah.

Perry: It’s like, you’ve got to sign in blood. No, I do not actually want my $2500 back. I want a good relationship. I don’t know how to get there. I need your help. Right? And so that means you’re putting pressure on the customer to perform. You know, if you sell software how many software companies, like- well, their IT department’s a bunch of clowns, like no wonder they can’t get our stuff to work. Right?

Andrew: I see. Use our software to enter your customers in every day and just keep contacting the way that our software tells you to. If you don’t make more money, we’ll give you back your money, or we’ll give you back half of what you paid. Frankly, give you back all your money if you don’t- if you use it and you don’t get the results.

Perry: Right.

Andrew: Those are great tips, great advice. If somebody wants to follow up with you, I know there are two places: one is, we’re going to talk about 80/20 book, the other is: where can they go if they want to see all of the ideas in the Swiss army knife?

Perry: [laughs] Yeah, if you can type a search box in my website,, and…

Andrew: Let’s go to the site right now.

Perry: Yeah, you can go to and type in ‘Swiss army knife’ and we have a product, and we guarantee- yeah that’s it. We guarantee that if you do this process, you’ll be able to beat your best [??]. I don’t care who wrote it, okay? I don’t care if you hired the most expensive copywriter you could find, you’ll always be able to do better. And so yeah, you know, go take a look at that and…

Andrew: I also say, about the book, “80/20 Sales and Marketing”, here it is up on everyone’s screen. Perry, thank you so much for doing this.

Perry: Hey, thank you! It’s really great to be on Mixergy. I think you have a very cool show, a very cool format. You ask great questions and it’s fun. So, thanks for having…

Andrew: I can tell you, entrepreneurs, if someone did a sight search on Mixergy and typed in your name, Perry Marshall, that you will come up with multiple entrepreneurs who have said, “and then I got Perry Marshall’s tips book, or signed up for something, and as a result I figured out how to do ad sales, as a result, we increased.” And it’s impressive what you’ve helped other people do. Thank you so much for being here. Thank you all for- and hang on for a second, I want to talk to you offline for a moment [laughs].

Perry: Okay.

Andrew: And thank you all for being a part of it. Again if you’ve got anything of value, don’t forget to let them know.


Master Class:
How to use Lean Analytics
(To build a better start-up faster)
Taught by Ben Yoskovitz of Lean Analytics

Master Class: Lean Analytics

Report Bugs

Master Class Toolbox

Course Cheat Sheet


Andrew: This session is about lean analytics. It’s hosted with me and today’s guest, Benjamin Yoskovitz. He is a longtime entrepreneur in the tech space and an angel investor, and the author of this book, “Lean Analytics: Use Data to Build a Better Start-up Faster.” My name is Andrew Warner. I’m going to help facilitate. Ben, good to have you on here.Ben: Thank you very much for having me.Andrew: The problem we’re trying to help people who are listening to us avoid is something that you experienced a few years ago. You spent a lot of time building a product called Stand Out Jobs and when you launched, what happened?Ben: Sure. So this is a very common problem for entrepreneurs. As you said, we invested a lot of time, a considerable amount of money. We thought we knew all the answers, a little bit of ego I would say involved in that and to some degree there has to be when you’re starting a company, but we launched it and unfortunately didn’t get the sort of traction we were expecting from it. And so the assumptions we had maybe made in our own minds about why this thing would be valuable to people weren’t panning out. And it wasn’t quite silenced from our Beta users, but it was clear that what we thought was a solution to a problem that we were attacking was not resonating with the people we were going after.Andrew: Here is a screenshot of the site. What could you have done differently? Where was the mistake there?

Ben: Well, there were a few mistakes, but the number one mistake, I think, when we go back right to the beginning of this company was not building a smaller version of the product and testing it more frequently with users. And so in lean start-up vernacular we call that a minimum viable product and I’m sure you’ve heard that before, and folks listening have heard that before, but we didn’t really build an MVP. We built something, I would say, considerably larger than that.

Andrew: So Ben, what’s the problem with that? So you spent a lot of time. Yeah, you didn’t build an MVP. Yes, people didn’t like what you put together, but can’t you at that point say, “All right, we’ll just redo the whole thing and start over.” Can’t you do that or what’s the problem with that?

Ben: Well, you can try, of course, right? And companies do, in fact, do that, but the cycle time from going from, okay, idea to building something to figuring out if this is working. It’s very long, unfortunately.

Andrew: I see.

Ben: And so you’ve mentally and psychologically, and financially committed to something. And so you’ve put yourself in a position where it’s very hard to go and do something else and change it completely. Frankly you’re not even going to know what to change to begin with. You’re not even going to say, “Okay, this is not quite working, but what have I learned from this experience?”

Andrew: I see and because there is such a big product you can’t tell which aspect of it isn’t hitting, which aspect you need to emphasize. I see.

Ben: Yeah, absolutely.

Andrew: Before I get to an example of how when someone who is listening to us applies all the ideas that we’re going to be talking about today, what can happen to them, I got to ask you a personal question.

Ben: Sure.

Andrew: If this business didn’t work out, where did you get the money that you’re using to invest in all these start-ups?

Ben: Oh! So I’ve been through a number of businesses. The last company I was at, not my current company, it was a company I joined very early on. I wasn’t a co-founder. The company was called Go Instant. And Go Instant was acquired by SalesForce in 2012. And so that was a financial success for myself, for the founders, for some of the early employees. And so that was one of my significant successes if you will, but that was the one that allowed me to get a little bit more into angel investing.

Andrew: I see. This is go Instant from October 2011 and within about a year they were sold of your [??].

Ben: Yeah, I joined the company in October 2011. About a year after that the company was sold. I worked for about two years inside of SalesForce, inside of Go Instant, essentially integrating Go Instant into SalesForce. I’ve since moved on to another start-up again, not the founder of it, but in fact, the start-up I’m currently working for, I was, in fact, the first angel investor in that startup.

Andrew: I see, Codified.

Ben: Codified, exactly. And the founder I had known for many, many years and he said, “Ben, I need you to come run product”, and the lure of chasing the dream, if you will, was very strong. And so I joined Codified.

Andrew: I get it. All right, so then if what we just showed is an example of what not to do, here is an example that will help us understand why analytics are important. What’s your connection to this company?

Ben: Sure. So I’ll give you the premise of HighScore House very quickly. They were looking at game-ifying chores for children and their parents. Not just chores, it could be activities, things you wanted to encourage your children to do, but the idea was to have children on a daily basis do tasks that parents agreed with the children to do. They would get points. They would then redeem those points for rewards. It might be toys, it might be a $10 gift card, whatever the case may be.

They went through the process of validating this idea with parents, they built their minimum viable product, and then they launched that to their beta users. So this is where it gets interesting from a lean startup and from an analytical perspective. Before they would say, “Is this MVP successful?” That’s the ultimate question we’re asking here. Is this product resonating with users? Is it creating enough value to justify going to the next stage of this and investing more money in it to scale it?

Andrew: And you’re going to advise us in a moment that we should have a metric that the whole company is gearing towards. Did they have that?

Ben: They did. So we were looking at active users. We said, “What’s a proxy here for value,” because they weren’t charging money, and money is the best proxy for value. If people are paying you, that’s, of course, great determination of whether you’re creating value or not, but in this case it was usage, are people using the product? So we encouraged them to set a very high bar. What’s a high bar that tells you that people are really, really using this product? So they said, “Based on some of our assumptions, based on our understanding of parents and children behavior, we think families should use the product four times per week.”

Andrew: Okay.

Ben: That was kind of their benchmark. You can, of course, measure that. How many times are people logging in? How many times are people using the product? So we said great. If I remember correctly, we were sort of looking at, say, if about 10% to 20% or your users are what you deem to be active, that’s great. That’s a good percentage, and we think that that justifies continuing with this business.

Andrew: So what happened when they actually looked at their real metrics?

Ben: They had a low percentage of people using it that frequently.

Andrew: Okay.

Ben: So they tried a whole bunch of different things. They tried tweaking the product, changing the product, changing the value prop, acquiring different users. All the kinds of things like let’s just go out and do more stuff to try to get this metric to where we think it needs to be. And then the founder of the company said nothing was working.

Andrew: Nothing is getting them to have 10% of their users log in four times a week and show that they really like the product.

Ben: Exactly.

Andrew: So what did the founder do?

Ben: The founder said, “I’m going to pick up the phone and I’m going to start calling moms.” Mostly moms, right. So he picks up the phone and he starts calling people who aren’t at the threshold, but are below that threshold. He would call parents who were using it once or twice a week, and the feedback was overwhelmingly positive. People were saying, “We love it. Our kids are doing what we want them to do. The kids are engaged in the product.” So the obvious next question is, “Well, why aren’t you using it more often?”

So what he learned was a lot of parents like to control the amount of time their children are on the children or on an iPad or on a mobile device, whatever it may be. So parent’s would say, “Well, on Sunday night, we sit down with our kid, and we go through the tasks that they’re going to do, we put them in HighScore House, then the kids do the tasks all week. We ask the kids to not use the computers during the week, and on Saturday or Sunday, they come back in, they cross off everything, and they’re happy, and we do it again.”

So what he learned from that was something about his users behavior, that is wasn’t a fault of HighScore House that people weren’t using it. That was a faulty assumption. He learned that parents were very happy using it only once or maybe twice per week because of a family dynamic, because they don’t want their kids on the computer.

Andrew: I see. So they had to change the analytics that they were using, they had to change the way that they were thinking about what makes their product a success or not. I assumed since this is a successful example of somebody using Lean Analytics that the company would be thriving. I went to their site, and they’re down.

Ben: Yeah, they’re down. So here’s the thing about any tactic anybody can ever teach you about anything pretty much is that there’s absolutely no silver bullet.

Andrew: Is there an example of a win, of somebody who has actually gone through all this, and because they mastered Lean Analytics or maybe not mastered it, but did it well that they built a thriving company or a company that’s still around?

Ben: Yeah, I think there’s a number of examples of those companies.

Andrew: Give me one.

Ben: The example I would use, they’re no longer around because they were acquired, but it was a company called Localmind.

Andrew: Okay.

Ben: Localmind was also one of our investments in Year One Labs. So what they did that I think was interesting was, they didn’t build a product to start testing assumptions, instead of building a product, so local mind to take a step back, was a location based q and a service on a mobile device right, so if you had a question about a particular place, the lineup at a place, the, you know, the daily specials.

Andrew: You want to find somebody who’s right there and ask them a question.

Ben: Exactly, and it was anonymous right, so you’re asking an anonymous real time question. And so, we all thought, “Oh, this, this is a great idea.” This service doesn’t exist, but before building an IOS application, which is a challenge, we said, what can we do to try to vet, you know, prove or disprove some of the assumptions and so the founders of Local Mind, they thought the number one problem for their business would be that people wouldn’t answer questions. That people, you know, you would send a question anonymously, some person would get it and be like, I don’t know who this person is, I’m not answering this question so I said, how can we test this assumption or this risk before we start building product.

Andrew: Okay.

Ben: And so what they did was, they used geo tag tweets, so people who were tweeting from Times Square, geo tag tweet, so you would know they’re at Times Square, they’re tweeting about whatever it is.

Andrew: Because Twitter automatically, for many users, will put in their location within the tweet, so they were able to search and find someone who was in Times Square and say, let’s ask this random stranger a question, and when they asked the random stranger a question, what happened?

Ben: People answered the questions.

Andrew: Gotcha, and that’s how they were able to prove that their idea worked and it was, it was worth working on and. .

Ben: Well, they proved that one, one risk, they de-risked one element of the business.

Andrew: Gotcha.

Ben: Right, not the whole business, but they de-risked one element. But that approach to things of, let’s test something, let’s not invest heavily in engineering and design and building a product if we can test something and de-risk it first, let’s de-risk it, and then move to the next challenge, the next problem, the next risk. And so, they were able to do that quite successfully, they were ultimately acquired by Air BnB, I can’t remember what year that was, well, 2010 probably.

Andrew: This was an investment of yours?

Ben: It was, yes.

Andrew: It was. So you did well from that one?

Ben: Yes, so that was successful, and I mean, they, those guys have gone on to do great things and thrive at Air BnB, which is, of course, an amaze, I mean, is a huge and amazing company.

Andrew: All right. Alright, so now I get a sense of the possibilities here. We can reduce risk before we even build software and we can understand, by doing that, what software we should be building and what companies we should build for people and if we do it right, we might have the kind of exit that the company that you’re talking about had with Air BnB. I’m going to move on to the big board here so we can get to the audience and see how they can take advantage of these ideas and use them in their own business. The first thing that you say is focus on the one metric that matters, the one metric that matters and if you give the example of this company. Who are these guys, and how did they do that?

Ben: Sure, so, the one metric that matters is a sort of this core idea of the book which says that any given point in time with your business, there’s one metric that you should really be focused on and it’s the metric that you would align the whole company on, it’s the metric that everybody is trying to improve and is thinking about. Obviously, it’s not the only thing that you track with your business but it’s there to create focus for the company around, what are my number one problems and what’s the metric that’s going to help me understand if I’m doing things in the right direction. So, that picture is of a good friend of mine, his name is Randy Smerick, and he is a serial entrepreneur, he has a whole bunch of businesses, funnily enough in the text base, but this is a restaurant, Solare Restaurante in San Diego.

Andrew: I see, and that’s him in the center there.

Ben: That’s him in the center, exactly. A Mexican restaurant, doing extremely well in San Diego and the one metric that matters for them, or we’ll say like, one of the key metrics that they look at is this ratio of staffing costs to gross revenues and what they’ve found is that when staffing costs exceed 30%, so they look at a ratio of about 30% of staffing cost to gross revenues, if they can, on a daily basis, have staffing cost to gross revenues be above 30%, they know they’re, the business is doing well and it’s healthy, at that given moment in time. And so, if that number is too high, so staffing costs are, you know, 40, 50, 60 % of gross revenues, it probably means what they’re doing is they’re got too many staff for the revenue that they’re generating, if it’s too low, let’s say it’s 20% or 10% ratio, it probably means that, you know, business is doing well but they’re understaffed.

So, it’s a, think of the one metric that matters, like, a health indicator for your business. It doesn’t give you all the answers. I think of it, like, it gives you permission to ask questions. So, imagine in this particular case, on a weekly basis or a daily basis, that number is 50%, you know, there’s too much, you know, the staffing costs are way high compared to gross revenues. Why is that happening?

Andrew: Right.

Ben: Is it revenues are too low? Are staffing costs too high? It gives you the ability to go in and dig into the problem, and then try to solve it.

Andrew: Let me take a look at a typical business that has prospects, leads, and customers. For example, mine. People come to the sight, we have hits. We can measure that. People end up giving us their email address, those are called leads. And then we have customers, when they buy.

Ben: Right.

Andrew: I could get drowned in data because it’s not just how many hits I have, but: Did this conversation get more hits than the other conversation? Do conversations with younger entrepreneurs get more than older entrepreneurs? How did we do last week versus this week? Where do we get the most email addresses? Where do we get the most customers? All of this data is relevant. How do I pick the one that is the most relevant?

Ben: We look at two things; there’s two things that we focus on. The first one is the stage of your business. When we look at the book we define five stages that every startup will go through. It starts with empathy. It goes to stickiness. It goes to virality, revenue, and scale. This is a fundamental tenet of lean analytics, that companies go through these five stages. Then you have to look at your business model, and you have to understand genuinely what is your business model.

In some cases that may be about Revenue, which is obvious; SaaS revenue, subscription revenue, an app purchase revenue, whatever it is. If it’s not a revenue-generating business, maybe it’s a consumer application, then your business model is more around engagement and usage. You have to understand the stage that you’re at, and you have to understand your business model.

If you understand those two things, and you’re honest with yourself about those, that really helps you narrow down what the one metric that matters is for your company. For Mixergy, as an example, and obviously I don’t know, right. I don’t know any of the numbers.

Andrew: We’re just using it as an example.

Ben: Just as an example.

Andrew: It’s okay that you don’t get it perfectly right, but I want to understand the bigger concept because of it. Let’s put it up.

Ben: Sure. The concept has been around for a while.

Andrew: Yep.

Ben: The company is successful. The company has grown. These are all things I know to be reasonably true.

Andrew: Okay.

Ben: We know you’re past empathy. Empathy is does anybody even care?

Andrew: I see. When we’re just starting out, that metric around empathy is what’s important to us.

Ben: Exactly. 100 percent.

Andrew: Does anyone care that this thing exists?

Ben: Right. At that stage, often times, it’s qualitative feedback. There might not even be a product; it might just be qualitative feedback from talking to users. That’s very much a lean start-up principle of “getting out of the building,” if you will, and talking to customers.

Andrew: Early stage, are we getting any people who say, “Yeah, we like this.” How many of those people are we getting, but we don’ have to go more than that.

Ben: That’s right.

Andrew: All right. Let’s go on, then, to later on.

Ben: Stickiness is when you’re building that minimum viable product. You build the first version of this product, now you’re putting it into the hands of those early adopters, and now you’re starting to measure things. You’re starting to measure engagement, and usage. That’s typically what you’re looking at, some form of engagement. This is the “high-score house” thing: are they using it frequently enough as a proxy for our creating value. The problem we were trying to solve with this product, are we solving it with this early beta version or this MVP version of our product.

Andrew: Okay.

Ben: That’s stickiness. If we use Mixergy as an example, we’re past the stickiness phase.

Andrew: If we were at the stickiness stage, it might be, “How far into an interview are people watching?” How many notes are they making on an interview? How many comments are they adding? How often are they coming back?

Ben: Those are all useful metrics in terms of engagement. I would guess it’s more along the lines of how frequently do they come back. Every time we publish a new interview, do people come back and consume the interview? Let’s not worry if they consume the whole thing, yet. Let’s not worry if they engage. Let’s just worry if they’re some definition of active.

Andrew: I see. As an entrepreneur, and if there’s a small team at this stage, what you’re focused on is, Are people coming back? Is this product sticky?

Ben: Sticky. Exactly.

Andrew: All right. Let’s go on, later stage.

Ben: Once you get past sticky, you’ve proven that a small group of people are using this product, are happy with this product; that you’re solving a problem. Now you need to get into virality. Virality means a lot of different things. In a consumer application it, literally, means how many people does each individual person invite. We’re talking here about customer acquisition. Can you go beyond those early adopters, to a broader audience? You’re now starting to test customer acquisition channels. You’re now testing real virality insight. Is your product viral?

Andrew: Are people sharing the product with their friends?

Ben: Exactly.

Andrew: Or, How many of them are sharing it? How many friends are they sharing it with? That’s the kind of number you’re looking for . . .

Ben: Exactly.

Andrew: . . . or for buying ads what

is our conversion rate? How many customers are we getting, or users are we getting in every month?

Ben: So now, that funnel you just sort of described a minute or so ago that you were describing about Mixergy. Now I care a little bit more about that funnel, right. Now you might worry more about the top of the funnel in terms of can I acquire anybody, you know a hundred people love this thing but now I need to get to a thousand, and then I need to get five thousand.

Andrew: Now I care about hits, or what we call prospects. All right, on to the next section here, wait before we get to the big board, the revenue.

Ben: Revenue, sure.

Andrew: Later on in the business is, is there enough revenue?

Ben: Exactly, so you may be charging from day one, right of course. It depends entirely on your business, right whether you’re … and maybe even at this point you’re not charging based on the type of business you’re running.

But now you have to look at … so now what you’ve done is you know people care, you know people use the product, and you know how to acquire users slash customers. Now you have to figure out if the economics makes sense.

You know, now you’re looking at the life time value of you customer verses the acquisition cost, now you’re looking at does the economic engine of this business work. And so that if I was thinking about

Mixergy I would guess that you are somewhere between virality and revenue. If I just had to guess that’s sort of like we can acquire users, are they good users, are the sticky do they convert into paying users.

How much am I paying to acquire them verses how much are they worth to me long term. That revenue is really when you’re focused on is the business economically sound, were as up to this point you know you may be getting a little of revenue into the business but you haven’t really focused on that because yon don’t have enough usage.

Andrew: Okay, and then finally as the company gets bigger we’re looking for metric, a single metric to focus on around scale. What’s an example of that?

Ben: So for scale again, scale can mean so many different things, because the other part of this of course is what is your business model, right. So scale may mean we just, you know, grow our acquisition because we know the funnel works. It might mean, you know if I’m thinking about a tech product it might mean we develop an API and we become a platform. And we acquire users and partners that way.

In a more traditional B2B business we’re now at the point where we’re hiring sales people because we have a formula. We know you know how many leads a sales person can generate we know what the sales cycle is. And now we’re really looking at just closing deals. And so in a B2B kind of software sort of traditional B2B software business, the one metric that matters is going to be close deals, as an example. Could be closed deals, right.

Andrew: So what you’re saying is, of course, lots of metrics matter but if you’re going to put one up on a big LCD screen for the company or one in the corner of your screen. If you’re individual entrepreneur you need one metric that makes sense and you need not a big table with tons of data but one that you’re going to focus on, one that you’re going to…

Ben: Here’s what I would suggest is that you, it’s so easy to track things now. We’re so lucky now that there’s so many tools we can use to track our analytics. I surge recommend track everything, right because you never know when something will be valuable.

The more data you collect the ability you have to ask questions of that data, right. You realize there’s a problem in your business somewhere you can now go look at the data to try to find an answer. But if you’re focused on to many things it’s very difficult to succeed.

Andrew: Track as much as possible, focus on one metric, all right. Let’s go back to the big board now we understand why we want to focus on the metric and we understand how to find that one metric based on were our company is.

The next big thing that you tell us, is want to focus on a metric that aligns with our business goals. And you give an example of this company, let’s zoom in this is…

Ben: Wine Express.

Andrew: Wine Express they created an AB test to test one of their web pages. And what could they have done, what’s the mistake that other companies would have made?

Ben: So I think what was interesting. So we dug a lot into Ecommerce Company so you know Wine Express is an Ecommerce Company the sell wine online. And so they have this page the wine of the day page and it was already quite successful for them. But they thought, you know what I think we can make this page more successful, I think we’re not sort of leveraging the full advantages we can out of this page.

And so they hired a company to do an AB test, and I think I’m sure you know your audience is familiar with sort of we change a few things on the page, we can see sort of the changes on the screen. And let’s measure which page is better. But the real question is well what the definition of better. And a lot of company’s would assume well conversation of course is better, right.

Which page converts more people? But one express said, well conversion you know is a good proxy for or possible a good proxy for success but really revenue per customer is actually what matters. Right? Because if one of these pages, if I optimize for conversion, but everybody comes to the wine of the day page, but they only spend, you know, $5.00, that might be worse than a page that converts less effectively but everybody spends $20.00. And so, that to me was fascinating because my instinct would have immediately been, “which page converts better”? That’s an easy question.

But in fact, revenue per customer is what really matters here because they found that one of these pages happened to convert better, but it’s really people would go in, they’d buy the wine of the day and then they would buy more. And they would buy more. And that’s obviously a home-run victory for that business because they’re focused on revenue, which for Wine Express drives that company, not focused on conversion. You can very easily over optimize a specific metric thinking that it’s the right thing, but you have to really understand how is it actually impacting your business.

Andrew: For them, the one that got fewer customers, the page that got fewer customers ended up delivering 41% more revenue, you say? Forty-one percent more revenue per visitor…

Ben: Right.

Andrew: …from the one that got fewer customers?

Ben: So, it didn’t actually get fewer customers. I think it converted slightly higher…

Andrew: Okay.

Ben: …but it wasn’t significantly higher.

Andrew: I see.

Ben: So, if you were just looking at conversion, you might say this is not super conclusive, but then when they look at revenue they were like, wait a second, these people are converting a little bit more, but they’re actually buying more. And so that’s really, the lesson here for me is, you know, just be careful about what metric you look at. Making an easy assumption that, well, conversion automatically means more success; it might not. You might be acquiring bad customers. Think about a mixergy funnel. You might try an ad campaign, for example, to acquire users, and you might get a whole bunch of them, but if they don’t convert later down the funnel, you know they don’t go from freemium [SP] to paid, or…

Andrew: We might actually have something that’s a little bit different where we created a sales page that got more revenue, but fewer customers, and we decided that we’d rather have more customers and less revenue because if we had more customers it meant better engagement for our interviewees.

Ben: Right.

Andrew: And we had to say, yes, more revenue feels great, but more customers actually has the ability to keep this thing sustaining longer. And then, if we need to, we can sell other things to the same audience base.

Ben: Right. So, I think that’s a great example of understanding your business and the stage that your business is at. You know, maybe later you’re able to optimize for revenue. Today, you’re optimizing for engagement on videos.

Andrew: Yep.

Ben: Right? And so, it’s a question of…when we think of business models, I think of them like a map. Right? It’s not like, “Well, I charge $10.00 per month.” That’s not a business model. It’s everything that gets a user from where they’re coming from to your site, to converting, to engaging, to churning potentially. Think of it like a whole map that you would put on a white board. That’s a business model. And when you realize, “Okay. I’m at the point now where I care about engagement with the videos because the people who are doing them, you’re trying to make them happy with that engagement…”

Andrew: A bigger audience.

Ben: Exactly. Then you optimize for that. You sacrifice a little bit on the revenue for more people. Later on that may change because the business evolves.

Andrew: All right. On to the big board. The next big thing we want to talk about is to change that one metric that matters. Yes, you want us to pick it, but you want us to also change it and be flexible. For that, a good example is Buffer.

Ben: Yes.

Andrew: I use Buffer all the time when I want to share something on Twitter. Instead of going directly to Twitter and tweeting it out, I add it to Buffer. Buffer will pick the optimal time of the day to tweet it out and will send it out at that point. What was their first one metric to focus on?

Ben: So, when they started Buffer…and I use Buffer too, great product. Great team. Great founders. So, it’s interesting because they did a couple of things. One is they started charging out of the gate, which is extremely rare for what you would consider sort of a consumer product. Right? Not sort of a traditional enterprise software product. They started charging. They did that for a couple of reasons. One was just financially for themselves, personally, to have some money and see what would happen there. But really it was a great measure of “Does anybody care”? So if we think about empathy, if you can get people to pay you some money, that’s a pretty good indication that they care about the problem that you’re solving.

Andrew: Yes.

Ben: And so, that was their first thing, let’s just charge people and see if anybody pays, right? But what’s great about Buffer is that, okay it turns out that people paid, and enough people paid that Joel and the co-founders of Buffer said there might be a business here. We don’t know for sure, but there might be. And so then they moved through the stages from empathy through to scale in sort of a logical progression. So once they saw that people were coming and paying, then they said, “Okay, well, what percentages of people are actually creating accounts?”

And it turns out at the time it was about 20% of visitors were creating accounts, and that’s a pretty good number, and so they said, “Okay well that’s more validation here then…” We’re not optimizing for revenue right, we’re not looking at the real economics, but we’re just proving that enough people are interested in this product, and then okay well how many use the product? And 60% of people who signed up…

Andrew: Yeah, I’ve got the numbers here.

Ben: Yeah, that’s great if you show them. 60% of people who signed up were turned in the first month, and so you see that’s stickiness right? Enough people cared, a high enough percentage of people cared, people were paying which is a pretty good proxy for a sort of consumer product, 60% of people stayed after the first month, 20% of people were still around after six months, which is quite good, and so you see they go from empathy to stickiness, and then they really started to focus on the end of the funnel which is conversion. They actually switched the model to free. They said, “Well we know people will pay but let’s go free because we need to acquire more people.”

Andrew: Or freemium.

Ben: Freemium, exactly, exactly, exactly.

Andrew: Where there’s a free version but you pay to go awesome.

Ben: Where you pay…And so then they went to that sort of virility stage of let’s use freemium as a marketing lever to acquire more customers faster, and let’s see what conversion looks like, and conversion at the time when we did this was about 2%, which is actually quite good for a freemium business, and so then they, they’re very much in that scale phase, which is okay we know, we know what our funnel looks like, our funnel proves to us, not just the funnel of acquiring people but the usage, and engagement, and churn, they look pretty solid let’s focus on…In a freemium business you have to focus on just tons, and tons, and tons of users. The math doesn’t work otherwise, and so they’re very much in that scale phase now which is let’s just acquire a ton of people and see if they follow the same behaviors of the people that came before, and if they do you’ve got a business.

Andrew: I see. The big takeaway is you need to keep changing your one metric and metric needs to make sense within your business. I actually understood that the founders focused at first on revenue, not just for empathy but because they needed money to survive if they were going to do this full-time.

Ben: Absolutely, absolutely. So there’s a little bit of survival instinct there right? Which is fantastic that the risk there of course is you know a little bit of revenue is not you know, it again like all businesses you know you solve one problem, you de-risk one thing only to get to the next problem, right? It’s I mean you know this right? It’s not like, it’s not like you solved the first problem in your company and then just everything magically falls into place. Right so you’re right they did that in a way of saying, “We just need enough money to be able to feed ourselves,” and that’s just the reality for lots of people starting companies, and if you can get to that stage that’s fantastic. I look at it and say, “If you take that part out of it, the necessity out of it, to me it’s a proxy for empathy.”

Andrew: So my whole team then will be focused on one goal at a time, one big clear goal for them, I and other people in the team will be thinking more granularly what do we need to do to get to that goal, is that number really meaningful for us still, that kind of thing? But as a team we’re all working together towards the one goal.

Ben: Yeah so I think way you described it, you know the big LCD screen, or you know the monitor if you don’t have the big screen, there’s one number in the middle it’s the number that we’re all focused on. It’s the number that tells us you know we have a goal for that number, and then there’s a whole bunch of numbers around that that are secondary numbers that help tell us you know give us more granular detail. You can have lots of different parts of your business all working towards the same goal in their own way. You know if you’re trying to lower churn for example, right? Which is you know the percentage of let’s say paying customers that abandon your service on a month, let’s say on a monthly basis customer support is tackling churn, sales people are tackling churn, marketing is tackling…

Everybody can be tackling churn in their own way. They can be running their own tests, their own experiments, they can be looking at it at a very fine, you know very fine amount of detail, but the whole business can say we know the top of the funnel works, we know lots of people are coming through, too many people are leaving, the bucket is to leaky, in that particular case everybody can work towards solving churn.

Andrew: All right. On to the big board for the next big idea for us to talk about which is to understand what business you’re in I interviewed this founder of this company.

Ben: Did you?

Andrew: I did, he’s such a great guy.

Ben: Yeah.

Andrew: And we talked about this topic that you and are going to be discussing, which is how he came, how clear fit his company came to their pricing model. What did they do and how did that happen because they understood the business they were in.

Ben: Right so I think this is like this is so much more fundamental then just lean analytics, this is just fundamental to understand your business, and I think when you say to someone you know understand your business model sounds like, “Well of course I know how I charge customers,” but Clear Fit is in the recruitment space and so having been in the recruitment space, I have a certain affinity and Ben Baldwin’s a great founder, they, they’re business is about assessing candidates. So, you sort of have to understand a little bit about what that business is, it’s for assessing candidates, so, somebody applies for a job, they have technology and tools for assessing that candidate, whether they’re a good fit or not for your company.

So they went out and they said, we’re going to launch this product, launch this business and we’re going to charge $99 per month. Right. And so they were going to take the, what we would describe, software is a service subscription model. It’s the model that, if you can build your business that way, if your business is aligned to be a subscription service, it’s kind of the Holy Grail because of course, people just pay every month, certainly there’s some churn but it’s kind of the, it creates the hockey sticks of subscription businesses or in the enterprise software space. But, what they were finding was that, they were getting some traction, but they were getting pushed back from their customers about the business model. People didn’t understand, well, why do I have to pay $99 a month when I’m only hiring this month and maybe next month, I’m not hiring this much.

The folks that they were talking to, HR folks, just, they didn’t quite get the value prop. The value prop wasn’t resonating with the business model. Alone, the value prop made sense to them, yes, we need a way of assessing all these candidates but when they applied the business model, it was causing friction. So, they switched the business model, and they said, ok, it’s not $99 per month, it’s now 300, 350, at the time $300, $350 per job posting. Now, what is interesting about Clear Fit’s business is that it’s not really about job postings, of course, there’s a job posting and candidates apply to the job and then Clear Fit takes over. .

Andrew: From what I remember, the posting happens on other sites. Like, they will post it on Linked It, etc. for you but, what they do is, really well, is what you said, they help you figure out which of the candidates that are applying make the most sense for you to consider.

Ben: Right. So, it’s not a job org, right, it’s not, it doesn’t, the pay per post model doesn’t really make sense for the ongoing value proposition of Clear Fit but what happened was they 3xed sales and they 10Xed revenue by changing the business model because what happened was they understood the customer and that’s the real lesson here. HR people get a budget from other people in the company to say we need to hire for these positions, you have, let’s $2,000 to make your bets and HR people will make bets on job boards for that job posting, they’ll get all the candidates in and they’ll try to fill the position. And so, by changing the business model to a model that the customer understood, that product was exactly the same, everything was basically the same, the model was changed.

Andrew: All right. Back to the big board here and we’re going to talk about a company we discussed at the top of our conversation. Next big topic is, to quickly test ideas with a concierge MVP, again, another mixer g interview we did this, this is Air BnB. What do they do here?

Ben: So, this is, so there’s a couple of things going on here that I think are fascinating. The concierge MVP idea is one of them. The concierge MVP is just, instead of building product, I mean, I would use local minds sort of, what they did with Twitter, almost like a concierge MVP, instead of building a product, can we find another way of doing it that, that’s not scalable, right, we know that that’s not a long term solution but what can we do to de-risk this, to test some of our assumptions. So, Air BnB, looked at the rental volume of their properties and they sort of saw this and said, you know what, properties that have better photos on Air BnB seem to be renting at a higher frequency than properties that have poor photos.

Andrew: And by the way, let me just show this on the screen, anyone who sees this can understand why the property on the left doesn’t get, doesn’t go as often as the property on the right. People don’t want to book on the left as often as they do on the right even though it’s the exact same place. And, it’s the photo, the photo on the right obviously makes the place look more enticing, makes it look more open, bigger. Okay. So that’s what they noticed, how did they use that information?

Ben: So they said instead of going out and building an entire system for taking photos and making something complicated, they hire 20 photographers and they said, they put up a page and they said, anybody who wants free photos of their place can sign up and we will send a photographer and we’ll take free photos. End of story. Not a scalable system, there was no calendaring system, no behind the scenes system for managing photographers, it was all being done by him.

But what they found was, not surprisingly that professionally photographed places were booked I think it was about three times as much. So they increased bookings three times just by using professional photography. And so that was, they did that by hand. They hired 20 people. They sent them out and said go take photos of these places. But then they started to build that system out. Right, then they started to build technology behind the scenes to optimize the scheduling, the, you know, deploying of photographers, the recruiting of photographers.

They started to build out this product because it became a real part of their Airbnb. And still today that screen shot off course is from 2012. But they still provide free photos for anybody because they know it’s going to significantly increase their bookings. And their whole business is based on bookings.

Andrew: And this, this is little big, but that is what happened

Ben: Right, Exactly, so, you know, right when they started this program this Concierge MVP, you see 20 photographers, you know, late tech 2010, booking started to go up. And you see a hockey stick in and that hockey stick is of course even bigger today. And the photography program is of course not the only reason for that. But at the point in time, it had a material impact on their business. So, I think the point here is for software companies anyway, but for any kind of business, you don’t have to always build the whole solution or what you deem the whole solution to be. You can build a piece of it that’s not scalable. See if it works. Test it against the important metrics and matters and then build the system that is actually scalable and automated and all of those wonderful things that make it sustainable.

Andrew: I see. Yeah, that’s what this Concierge MVP idea is. A lot of time people think of an MVP, minimum viable product, as an actual product. Concierge MVP says doesn’t have to be a product. It can be some human being doing this in a very handmade, a very unscalable way. But you are telling us, do it that way so that you can get some metrics. And if the metrics, if the analytics tell you that this is worth pursuing then figure how to scale it and whether or not to get in to it. But don’t do it and don’t do it from the start. Don’t start building out a team of photographers. Don’t start building up the software. Try doing it.

Ben: Right. And Air BnB you know at that time in their business, they had the resources to do basically whatever they wanted. Right

Andrew: Yes they had tons of that. They were flush

Ben: They could have hired ten thousand photographers. Who wouldn’t want to go do that work for Air BnB. They could have built a massive thing. Spent six months designing the perfect you know the back end automation system for scheduling photographers and said wowowow [SP]. Don’t do that. As you described, build something small. It’s not scalable. And it’s not even a real product. And let’s just validate that this thing actually works and moves the needle on what matters for our business.

Andrew: All Right. On to the big board again. The penultimate point, which is to find the industry benchmarks. Again a friend and another Mixergy interviewee, here he is Jason Cohen’s Business, WP Engine which hosts WordPress sites. In fact they are hosting this site, Mixergy. What’s the issue that he had? Let me bring him up again.

Ben: So this is a big challenge. So you know, when we say to or when I would say to the company or what we say in the book is you know you pick that metric that matters. And once you understand your business model and what stage you are at, it becomes fairly easy to focus on something that’s going to matter. But then two other, you know the next step there is you need a target, you need a goal. And what we would describe as a line in the sand.

Let’s say, you know that the metric you focused is churn. Just use that. And that’s the example from WP Engine, right. But you know, let’s say churn is 8% right now per month for your business. You know it’s not good. You know it could be better. And your acquisition is good and you want to focus on retaining more people. But what should it be. What is it?

Andrew: Should it be zero?

Ben: Well zero. But there is no such thing, right? There is absolutely no such thing. So we ask, we sort of recommend to people or ask them when I talk to companies, you need a goal in mind. Just like high score house, four times per week and they change the goal based on their learning. Right. So, Jason, when he was growing WP Engine, they had a churn rate of 2% or so per month. And when you think about it, that’s a quarter of your customers a year disappearing. Right, which can freak you out. That’s a lot of customers, right.

So he went and said, “We are going to go and try to improve churn.” They did a bunch of things and they couldn’t really move the needle on churn. It just sort of stayed, 2% 3%. And so he then went and said, I need to go get more information about this. And so he talked to other people in his industry in the hosting space. He raises capital in part for Automattic, the makers of WordPress. So by talking to some other folks in his industry, he learned that a trail of two percent is quite healthy in the hosting business.

Andrew: And Automattic is another hosting company for WordPress sites. So they’re very similar, a very similar business. And so if Automattic says, “Hey, our churn is 2%”, then how could Jason really do much better than that?

Ben: Exactly.

Andrew: I see. And so…

Ben: And so…

Andrew: At that point he says, “You know what? My numbers are right where they need to be for churn. Let’s focus on things that we have much more impact on.”

Ben: Exactly. So, now that, you know, once he sort of learned, “I can’t make churn one percent. I can’t make it point five percent”. It’s going to be . . . Now if it ever goes up from there we kind of know what our benchmark should be and we can maybe address that down the road. At the time, I could spend all my energy banging my head against the wall trying to over optimize a metric that’s probably not going to move. And even if I improve it a little bit it probably won’t have a significant impact on the business.

So it kind of . . . I sort of would use it like the term . . . It sort of gave Jason permission, if you will, to move on to something else that would have a bigger impact. Now that he knows churn is only two percent, you can logically focus more on acquisition to acquire more people and widen the top of the funnel. Why pour more people into the bucket? The bucket’s a little bit leaky. It’s always going to be leaky. But it’s good enough, if you will.

Andrew: And I did see that he did that a lot. He…

Ben: Yeah.

Andrew: …not only got more people at the top of the funnel but bigger and bigger clients at the top.

Ben: Right. Exactly.

Andrew: All right. Final point is one that we kind of talked about earlier. This is “Always question and test your assumptions.” We talked about how this company did it. Here’s Localmind, if I can bring them up on the screen. There they are. Localmind is the company we talked about earlier which wanted to let people say, let people ask others- wait. Said- ha, you know what? I did such a good job of explaining it a moment ago. Let me see if I can recapture the magic. Hang on a second. Here’s what they did. They said, “People want to know what’s going on in a local place. Can we create an app that lets them find out what’s happening in a small location by asking strangers who are there?” Instead of building the app first, they went to twitter to test one of their assumptions. How else have people done it?

Ben: Well, I think there’s all kinds of ways of sort of testing things before you really commit. So, you know, AD testing, I think, is a good example of that. [inaudible] express sort of saying, “You know, let’s test different versions of this.” I like to think about- you know, when you think about testing marketing language or value propositions using landing pages in a way that, you know, don’t change your whole website. Throw up a landing page. Acquire some traffic maybe through Google or Facebook. Obviously depends on your business. Drive that traffic to that new landing page and see what happens.

So before you rebrand your company, before you change your entire home page, there’s lots of ways of sort of testing things in advance. So I think- and Localmind is a good example of that. Instead of investing- before you assume the answer is to build something, think about a way of testing it before you build something.

Andrew: You know, I’m looking online, but for some reason I can’t bring it up right now. Buffer did that. So oh. Here we go. Yeah. Here. I’m going to grab a screen shot and show you. It’s as good as I can get…

Ben: Okay.

Andrew: …at this moment but. It’s from my interview with Joel. Here’s what he did. This is the very first thing he put up on his site. “Tweet more consistently with Buffer”. And you can’t yet see the button there but in the upper right you can see the words that were on the button which are “Plans and Pricing”.

Ben: Right.

Andrew: He was testing to see if anyone would actually click on “Plans and Pricing” to see if anyone would actually pay for this…

Ben: Right.

Andrew: …and there was nothing there. He didn’t even have like a basic PayPal button on there.

Ben: Yeah.

Andrew: It just said, “Sorry. Give me your email address and I’ll let you know when you can pay.”

Ben: Absolutely.

Andrew: And that’s a basic way of testing.

Ben: Yeah, I mean. And you can do it inside your product as well, right? You can do it, um well I’m trying to remember what product. I-I- I forgot the name now. But a product I was using recently or testing out. It had a “Reports” button. And I clicked it and it was just like, you know, “The reports aren’t ready yet. They’re coming soon.” You know, “Tell us what you would be interested in when it comes to reporting.” So, you can even do this inside your product.

Andrew: And they were testing the assumption that people actually want reporting.

Ben: Want reports. And then, of course, if you clicked it, now you’ve hooked me so I’m going to tell you what I want, right? So you’re just going to, you know. Maybe you’re going to irritate a few people because the reports aren’t there, but by and large, people will click it, which you are able to track. And then it gives you a way of opening up a conversation with those users.

Andrew: The book that everything we’ve talked about here today is based on is called “Lean Analytics: Use Data to Build a Better Startup Faster”. What’s one thing that if people go and grab the book they should be looking for?

Ben: Well, so don’t read the whole book. How about that?

Andrew: Okay.

Ben: So. You know, it’s a very, very big book. The screen shot doesn’t show that. But it clocks in, you know, 400 plus pages. Like, it’s a behemoth. But the reason it’s so big is because when you talk about metrics. We try very hard to get into specifics and details. Like some of the case studies. And we try to, you know. Find the stage that you’re at for your business and find the section of the book that relates to your stage. Find the business model for your business. And we cover about six business models in the book. And see if one of those, or a couple of those, resonate with you. So I see it more like a reference book as opposed to a book that you sort of read cover to cover.

Andrew: Oh. That makes sense, especially for startup entrepreneurs that don’t have much time to sit and read…

Ben: Yeah.

Andrew: …long books. All right, but there it is. Let’s bring it back up on the screen one more time. “Lean Analytics”. Ben, thank you so much for doing this session with me.

Ben: Awesome. Thank you very much.

Andrew: You bet. Thank you all for being a part of it. Bye everyone.


Master Class:
How to test a revenue generating program
(From scratch)
Taught by David Bullock of CEOMastery

Master Class: Test Revenue

Report Bugs

Master Class Toolbox

Course Cheat Sheet


Andrew: This session is about how to find and test a revenue generating program. It’s led by a returning guest here today, David Bullock. He is a consultant who helps companies find and grow their revenue. That includes working with them on SEO, pay per click, traffic building, funnel creation, and so much more up and down the chain of command.He works with newer startups and with more established businesses, like American Express and Kawasaki. You can find more about him on his personal site which is or on I just scrolled over a list of his past clients, but you can click around and find out more about him on there.So David, thank you and welcome.David: Thank you so much. Good to be here.

Andrew: You are working for this company. Let me bring a screenshot up. it’s called “The Nurse Company”. Whoa, I just went a little too big. There we go. And they had an idea for a Facebook-like product. What did you think of that idea when they said they wanted to create a Facebook . . . Actually what kind of Facebook-like product did they have, and what did you think of the idea?

David: Well, what they wanted to do was create a Facebook for nurses. That was the original business plan with the idea that typical companies have. Start a Facebook page and if we make it, somebody is going to come in and buy it from us.

Andrew: Mm-hmm.

David: And I looked at them and I said, “Well, that sounds good except the question is what if no one buys you quickly. What kind of money are you going to make between the idea and buyout? And so since that was the case, one of the things we looked at was, wow, there’s already a Facebook. So who’s going to buy that?

And what happened is quickly I sat with the CEO and I asked the question. In your marketplace where’s the money? Is it in the nurses or is it in employment or education? Basically was it hospitals? The employment in the hospital of the nurses or is it in education? We found the money was in education and in the employment side.

So we went from this idea which is a typical startup idea of “We’re going to build it, and then someone is going to come and somebody is going to snatch us up and life is going to be good because it’s going to be a big buyout too. What if they don’t? And what can we test quickly to find out if there’s money in the marketplace? And what I advised them to do very quickly was let’s see if we can learn some straight lead generation using AdWords. And let’s find out if we can actually place nurses in hospitals like a headhunter for a finder’s fee.

Andrew: Interesting.

David: So, again, we went from this idea which is a typical idea, a great idea, to hold on. Let’s go upstream or downstream and find out where the money is.

Andrew: And if they would have created the Facebook for Nurses, I imagine they would have been in for a world of hurt. You told them, “Look, it’s not much revenue. You’re being a little more diplomatic than I would be. [laughs]

But because of the tactics we’re about to teach today, you helped them identify an opportunity. It did bring in revenue and you tested it using AdWords. I’ve got here in my notes for your conversation with Ann Marie Ward who produced this that you spent . . . In three months you spent $4,000 on AdWords. Do you remember what your revenue was from that, from the $4,000 on AdWords?

David: They told me that they created about $30,000 worth of gross revenue in.

Andrew: So that’s it. And not that’s it, that’s it. That is the point, $30,000. You’re able to test their idea and say, “Look, here is something that shows measurable promise. This is the direction that makes sense for you, and as a result did they go on your direction?

I know we’re going to hear about more in the conversation, but did the? They did.

David: Yeah. What they did is actually they did the AdWords in my account. That’s why I still have access to AdWords. I did the AdWords in my account. I transferred all the AdWords ads, landing page, as well as the key sets. So I gave it all to them, and then they went on ahead and ran their account. And they continued running it. Again, look at their local advertising for the region, and they used that to create $30,000 of revenue.

They brought a nurse on who actually spoke in nurse language to nurses, placed them in the hospitals, and that’s how they had the initial revenue. I believe it was $30,000, so it was great.

Andrew: I see. Here are some of the ads you ran. Let’s see. Whoa, that’s a little too big. There we go. There are the ads that you ran, licensed nurse jobs, Tennessee nurse salary for registered nurse, et cetera.

David: Mm-hmm.

Andrew: That’s it. There is the money.

David: Yeah. And look at the ads I want to point out here. Look how specific the ad is, Tennessee nurse’s salary for an RN, experienced licensed . . . So I’m asking in the ad disqualifying as well as qualifying people because you see . . .

Andrew: We’re going to see that in a moment too.

David: Mm-hmm.

Andrew: Yeah.

David: Right.

Andrew: Disqualification is important.

David: Absolutely, absolutely.

Andrew: Right.

David: I mean, do you decide if you want everybody? No, we don’t want everybody. You want the people who can fit the bill for whatever it is you’re trying to make money with.

Andrew: All right. Let’s go on to the board. The big board of ideas. The first thing we’re going to be covering. And this is everything we are going to be talking about today. But the very first thing we want to talk about is to find an undeveloped marketplace. The Facebook for X is already developed. You want to find the undeveloped marketplace. You did that, since at the top of the interview I mentioned Kawasaki. You did that with Kawasaki. I think this is one of their…some of their equipment. Help me understand how you saw their equipment and helped them think about an undeveloped marketplace.

David: Well, I was working with Kawasaki. This was recent, this was last year. They’ve been here for quite a long time, but their company actually is working in much of a startup mode. So when I came to work with them, I look at their market. They are primarily automotive. If you look there, those are boxes. Everything that leaves a plant goes into a box. Whether it be Hershey bars, Rice Krispies bars, it doesn’t matter. It has to leave in a box. That’s palletizing in the food industry. So what did I do? I said well you’re over in automotive and it’s a blood bath. You have everybody in that same place. Profit margins are getting thinner and thinner. The competition is high. Very crowded. I said let’s go over to the food industry.

We went over to the food industry and we found out there were these situations like this where you had to put a robot at the end of the line, to put the box on to a pallet, to get them into the truck. So I went ahead and actually found one of my contacts who had worked in the food and beverage industry for quite a long time. He already had the relationships. And it was an easy way to go in to Niagara water or to Hersheys or to Folgers, Smuckers, or I’m trying to remember the last one, but it was the food industry. And we had a contact. They were not there. Because we knew where the application was, we were to take something that was being used from one side that was unprofitable, to a place where it was completely profitable and green field. Wonderfully green field.

Andrew: Green field meaning [sp]untrowed upon?

David: Untrowed upon. I think they call it Blue Ocean Strategy. I think that’s what it’s called in startup-ese. Blue Ocean. No one’s there. There’s no sharks in the water. And manufacturing calls that green field. There’s nobody there. That way you can walk into the plant and say “Oh, you know you can automate that? Oh you know you can automate that?” And it just was wonderful. Because all of a sudden now we’re not only selling robots, we’re also selling service. And we’re going into new markets with products and services that over here they were commonplace, but over here they’re extremely valuable. The lesson here is your product has multiple uses. And you won’t know where it can be used or how it could be configured until you actually take a step to the left or the right of where you thought your niche was. You can still niche. So don’t think that when you’re being diversified that you’re not niching. You’re just niching maybe in a more profitable location, or a more profitable industry.

Andrew: So what that brought to mind to me was this interview that I recorded the other day with a guy who runs Superfly Kids, and he used to do ad words for so many different things. He was a marketer. I can’t even think of some of the examples. But there were so many mainstream things he could be doing with it. Instead he hooked up with a woman who sells capes for kids. He said all of my marketing techniques that might be commonplace in the rest of the startup world, is completely unused in retail for kids who want capes. And so I asked him what did you do to get going and he said, “Well I came up with a URL that had my keywords in it.” I said, all right that didn’t work. Then what did work? And he said, “No that worked!” Nobody was using it in the cape space. And no one was using it, or very few people were using it, in a kid retail space.

So it was those kinds of changes that allowed him to build his company. He told me the actual revenue, but all he was willing to say on camera was over $2 million. Impressive. And that’s what you’re talking about. Look for places that don’t have as much competition. And for Kawasaki it was going to food. Hersheys and Smuckers as customers. Here is the other thing I learned from you. Kawasaki does more than motorcycles? They do this stuff?

David: They do motorcycles, ATVs, robots. They do jet planes, bridges. They do turbines. They do bullet trains. That is something that people don’t know. Now watch this now, Kawasaki has been branded here in the United States as motorcycles. But here it is, they have this wide breath of situation. I’m going to tell you a story that was not necessarily going to be part of this interview. Kawasaki could go to a trade show and they could go put a motorcycle for the trade show. And people because they know the motorcycle they’ll come and give, no joke, bags and bags of leads.

And I told her manager, I said, “You’re the only robot company who also sells robots, ATVs, and everything else that you can use it as a marketing gimmick to get the people to come into the second auditorium way in the back. And you’re the only one with a robot, and you watch them pickup two garbage bags of handwritten, email address and phone number leads just because they wanted the motorcycle.

So, again, when you’re with your company the idea is what can you tie with your company that gets enough attention to garner the actual just full out focus of the marketplace.

Andrew: Yeah.

David: Just because you’re selling software does not mean you can’t tie it with something which is new, cool, and exciting.

Andrew: All right. Let’s look at the next idea. This is one that you already brought up which is you want to qualify your customers to increase conversions. You did that before. Tell me if I went into the Internet archive to see if I could find a screenshot of what this company’s qualification page looked like. Does this look familiar at all to you?

David: Yes, I built that.

Andrew: You built that.

David: I built that but it looked prettier than that because it had a header and it had footers in the background.

Andrew: Yeah. Our archive does not pull in images, and it doesn’t seem to say CSS and other things, but this is it. What were you doing here, and how did this help?

David: This company was a fleet tracking company, a fleet GPS system is what it was selling. And what this page shows is this is the qualification page. So they were getting a lead from the general marketplace where they would typically go into the front door of their website. The front door of their website was not targeted to grab the person’s information.

So what I did is I went and I called their call center first and I called some of their customers and asked questions, like, okay, what are you looking for if you’re looking for a fleet tracking system. What do your customers say? Once I gathered that information, I designed the page.

Now on the page I asked for a couple things: names, email address, phone number – now watch this now – best time to call. So if I put best time to call they’re expecting a phone call from me now.

Andrew: Mm-hmm.

David: Right? Then I was asking for position in the company. So now I know are they a decision maker or not and then questions, like how many trucks do you have. Then I ask the question what’s the potential of sale here? And then further I asked do you let the people take the trucks home? Now that’s an insider question that would tell them actually what I was talking about. And then yes or no, yes or no, and then at the end do you have any comment.

So when I get that lead now, it is a warm call because I’m going to say “hi”. You fill out this. You answer these questions. You said you wanted me to call in the afternoon. It’s about two o’clock. Is this still a good time? So the questions disqualify . . .

Andrew: Let’s see if we lost the connection there. If we did, we’ll piece it all back together. Oh sorry. We lost you thee. You were saying the question just disqualifies and then we lost you.

David: Yeah, right. The question disqualifies them because I was asking the question within the dropdown. It was a minimum of two trucks, two. If they had one or zero, then obviously I didn’t want to talk to them.

Andrew: But I look at this though, and I see reduced conversion rates, meaning . . . I saw the look. I wish I had brought it up on camera. I saw the look you gave me as soon as I said reduced conversion, but I do see that. And I say every extra field is going to mean fewer people fill it out. When I look at my AB test software to see did I increase conversions or not, this would definitely reduce it because of all of the questions you are asking.

So why did you make that face? It’s important to understand that.

David: Are you looking for subscribers, people just filling out your form, or are you looking for sales?

Andrew: I guess, I feel like the more people join my mailing list the more opportunity I have to make a sale to them, and if they’re on the mailing list and they’re not qualified, how much does it cost me a couple of pennies a year to keep them on the mailing list? Fine, maybe they’ll end up doing something else, like promoting one of my pieces of content, sharing with someone else who they know is in business who might be interested and so on.

David: And, again, in a business where you are looking for volume and you have an information product, that makes perfect sense. But then when you start looking at your actual open rates and actual response rates from a subscriber’s list, it’s very different than a buyer’s list. I’m in a situation here where one sale would produce a minimum of $20,000 in revenue in this particular marketplace plus they have a call center which means they don’t have a sense of cost. They have people who are on the phone. So they’re paying people to make sales.

Andrew: I see, okay.

David: Those leads close at 20% in the call center. They were ecstatic because before they were getting five to 10%. I doubled their actual call to close rate for the people that they’re paying to be on the phone. So, again, you have to look at the infrastructural systems to determine whether it’s a few cents or it’s actually someone’s salary every year and they’re not making the grade. So that’s really what it is.

Andrew: And you know what, actually? There is a time in a product development where I do add more questions, lots more questions; where I do want to qualify people. And that’s when I’m just launching something new, and I don’t just want anyone in there because I want to have very specific feedback. I want the person who really cares about it, not the person who’s just checking me out and is going to have all kinds of issues that don’t relate to the person who really cares, you know? So, at that point I add more questions.

Here, let me actually be clear about it. I had this course that I did about how to deal with the inner critic that we all have in our heads. I said, “You know, let’s get as many people in as possible.” In fact, I did, as I grew the list. And then I said, “I’ll have some people over to my house, and get some real live feedback from them.” I said, “Let’s let as many people as possible, who cares?” I had one guy come in, and I just couldn’t give him the feedback on his ideas that would work. And it felt like maybe what I’m working on just doesn’t work because it’s not clicking with him- he’s loud, he’s giving me negative feedback.

I said, “All right, I should go back to the drawing board.” And then I looked and I saw everyone else was happy except for him and I understood why. He was only participating because he wanted to hang out with me, and he couldn’t get me to return his calls. Everyone else was actually in for the issue. So I should have disqualified him. I should have said, “I only want the people who are good fits.”

This is a very long story, actually. I don’t like when I talk this much. I’m here to hear you talk that much. But what I’m saying is, early on in product development I do want just the right people and I could see how something like this would make more sense. And, yes, definitely I could see how it would make sense when you’re selling things on the phone, and it costs a lot of money to talk to every prospect.

David: Well, I’m going to give you something here which I typically don’t share- something called story alignment. There’s four stories that are relevant in a marketplace: product story, market story, client story, and your story. There’s only four. Now, within those four, one informs the other. Typically, if you look at the way people work, typically they’re either product focused or themselves focused. They forget about the market standards on this side, and they forget that the actual customer has a story that has to align, which is [what] you’re speaking to.

There’s a whole methodology around story alignment that I do with companies, because once you get those stories aligned- just like when we were talking about the nurse company, the stories aligned- and when the stories align, as well as when the GPS systems align, you get sales. You can’t not get sales. So that’s a whole other methodology that we go through.

But one of the things you spoke to was the inner critic. A lot of times we cannot hear our stories because of other people’s, and that’s the problem.

Andrew: All right, fair point. I think we’ve explained this and I think it’s time then to move on to the next idea, which is to run a quick and dirty video campaign test. You did this with an education company that was rushing to launch tablets for kids. How many videos did they create before they started to create their product?

David: They created one wonderful 30 second video. It took six months. They had the right pictures and the right script, and the perfect music, and the perfect child- it was great. And then they put it out to market and nobody moved because it was a call to action.

Andrew: Did they do this after or before they created their product, the tablet?

David: They actually had created the product, they had prototypes and they created it before. So they were running in parallel paths, which is OK.

Andrew: Okay.

David: So they did it before, and I remember looking at the video. And I said, “OK, um, what is this supposed to do?” And they said, “Oh, this is going to give us our sales.” And I said, “No, this is a commercial lauding how wonderful the company is, but not necessarily giving them a strong ‘The tablet will do this, this, and this, your child will do this, and you can buy it over here.'” None of that was there. So what we did is as I’m looking at the video, I said, “Can I use the video, thank you. Sliced it, diced it, used a piece of it, did the script, did the voice-over, put it together, and then we created our own video in like three days. Then we turned around and took our video, put ti out and got 20,000 views within about the next 10 days, and found out what the market wanted and what they didn’t want by how they handled this video.

Andrew: What do you mean, “How they handled this video”? How can you tell from a video which features they wanted and which they didn’t, so that you know how to promote it in the future?

David: Well, what we did in this particular case, we used the company virtues that that they said were important to them. Again, this was very much customer focused, they weren’t market focused at all. We did that, and what we found is we got 20,000 views- we did get click-throughs, traffic from the video itself, but then it didn’t pull the only [??] website, so we knew that there were people that wanted a tablet. We knew that at least they wanted something from this company because there was market recognition, but we also knew there wasn’t enough emotional push from the video to [??] the sales page [??] actually make sales.

Andrew: Okay.

David: And you can actually see that by looking at the tiers in the analytics. First of all, was the video seen? Great, it was seen. How long was it watched? Okay, that tells you the engagement factors, where are they dropping off. Then the question is, did they actually go to the link which is under the video on YouTube, or are they going to actually click the one that’s on the interior of the video itself.

Andrew: And you used two different URLs, one underneath and one within the video to see – oh, okay. Here is the video, let me see if I can bring it up here. There’s your site on my browser. Here is the video, and now I understand.

David: That’s part of [??] Vimeo.

Andrew: Yeah, now it’s on Vimeo on the link that you sent me. Now I understand why you have – oh, this is just an image, this is another image that you took. This is software that – the software creates this, it’s not like you actually did this, right?

David: [??] look different, right.

Andrew: And now you’re testing to see internet connectivity. Do people care about that? Here is video from them, I imagine. The mother giving her daughter a tablet. Actually if you scroll back you can see the daughter is opening up – let me zoom in. What am I doing, there we go, right? Oh, zoom in does not work. Okay, I will fix that. There we go. And more information, using that software. And then at the end there’s a link within the video. And so that is all information for you. What are they interested in, what are they watching.

David: Right. And again, I used pieces [??] from their video to make that video. Their video was wonderful, it was whimsical, it had beautiful music, it was lovely. But there was no hardcore action, real features and benefits that people could grab onto. And I could just look, I was like, well they care about this, this, and this, but not that. And the nice thing is, when you’re doing your own videos, you can swap pieces in and out at any given time, and you can find out what people care about. It’s very easy with video.

Andrew: I see, yeah. It is these days. These days.

David: [??]

Andrew: I used to do that when I sold – before I did video courses, I created videos to sell guides, like document guides that were based on my interviews. And I remember I shot a video and people weren’t exactly getting it. And I could see that they didn’t understand that it was a guide with multiple pages, that they didn’t have to wait for it to come in the mail. And I got that through feedback from people, but then I could go back into the video and make an adjustment and show that it’s paper and you can flip through it and suddenly I can see, because of my analytics, that people are watching it, and that its sales increased. That kind of stuff is very helpful. I forget the video – video is actually a bear to edit, but it is editable.

David: Oh, and [??]. First of all, if you do a voice under, which you do to script, you can cut and chop a script easily with Audacity or even within Screenflow or Camtasia. It’s just easy in there. And even Snagit now does a great job. It’s like, 40 bucks, maybe. And you can speak the screen, you can get all the stuff. And just again, when you do your audios or your videos, if you do an [??], like you think of it, okay, this is this point. you can always take pieces and parts and move them around and find out sequence [??] people enjoy things, or whether [??]

Andrew: You know what that is [??] If you create as much as possible the modules ahead of time, because even if I have the same mike, the same set up, the same room, if I come back three days later and record an extra feature, my voice sounds different enough that when I slice it in the audience can pick up on it. I know I can when I’m listening. So yeah, what I often will do record without my video being on if it’s something I plan to edit in and out, and then at the end of recording also create these other snippets that I could slice in and out.

David: Exactly. [??]

Andrew: So that’s how you’re doing it, that’s what you’re telling us to do when we’re testing the value prop onto the big board. We’re going to take a look at the next idea we’re going to cover, which is, use what you have to leverage other revenue streams. You did that at the [??] company. You were CMO, right? Chief Marketing Officer at that business?

David: Yes. Exactly. In 2010, correct.

Andrew: When you started with them, what did they do, before we get into this point.

David: Oh, they were the Facebook for Nurses [SP]. They had this idea, we’re going to create a Facebook for Nurses, which is going to be more of a forum in a community for Nurses. And the first task was to build that and then they wanted me to help them with the social media. So we built it. Okay, what did I do for them? I came in, found out, I did the first [??] piece which put them on the map. The second piece I did with them, I went into Facebook and actually used Facebook ads to put 5000 people into their membership within 30 days, and that got the investor to say, “Oh, wow we have growth here.” Which then got the investors excited, and then from there I said, “Okay, two places to go.” Again, education and employment. So, we started doing lead generation, head-hunter work for hospitals. That was one side. Then we went to Chamberlain.

Andrew: Hold that thought. We’re going to get to that in a moment, because that first thing is important. Once you realize that creating a social network for nurses doesn’t make sense, but we have all of these nurses in our system that I got for the company from Facebook. What can we do with what we have to find other revenue streams? And that’s when you said, “Let’s try nurse placement,” and that’s when you tested it. You said, “Same pool of people; let’s see if we can be,” as you call it now, “The headhunter that helps hospitals find nurses.” That’s the model that you eventually shifted to?

David: We shifted there, and then we shifted to selling advertising into that nurse community to the educational institutions.

Andrew: That’s the part I want to get to because it helps make the next point that we’re getting to. But, what I want to understand here is the big idea, which is to say you have the resource: what else can you sell to them? What else can you use to bring in revenue? How do you find these other revenue sources, right? I have a Mixergy audience, for example. Someone listening to us might say, “You know what, I’ve sold 1000 or 500 people on my software and service. They’re all paying me month to month. But I also have this list of 10,000 people who aren’t buyers. I’m going to look for another revenue source.” David, how do they find another revenue source?

David: I’ll tell you a story first. I remember I sat them down in a room and said, “There’s nurse Betty sitting across from you. Let’s look at nurse Betty’s career. Well, nurse Betty is going to need shoes, a stethoscope, books, scrubs; she’s going to need continuing education. Of what we know about her, what of those things can we sell to her? Because nurse Betty has a life outside of just education, and outside of just employment. Let’s go into the employment: what does she need while she’s being employed? What does she need while she’s being educated?” And then started finding affiliate programs and developing joint venture relationships with the people who supported either one of those sides of her life. Again, we talk about customer life cycle. You have to put yourself into the place of the customer, and start really looking at what all would they need to support the happiest life they can have as a human being in that particular role.

Andrew: So, you thought about scrubs, and you thought about multiple other ideas, but also job placement. How can you test these ideas quickly, and see will they make sense? Without having to create a scrub-based business that manufactures and ships scrubs. I can see how you can actually test that fairly easily; maybe drop-ship. But how do you test the other one, which is the idea of doing job placement? Do you start doing job placement for them? Do you start making calls to hospitals and saying, “Hey, I have some nurses here that might want to work with you. Can I get paid every time I send them over?” Or is there another way? How can you test your idea?

David: Well, you did something very important. You did this part. The phone is a very significant marketing tool, and research development tool. It was exactly that, “Hi, I have these nurses. They’re here locally. Do you have a need for registered nurses?” It’s a simple question.

Andrew: Calling up the hospital HR department?

David: It’s either yes or no. If you don’t have a need now, might you have a need later? Yes or no? What type of nurse would you want if you were wanting one? And they’ll tell you. And you have the nurses; you have 5000 nurses over here, and you look at the list and that’s it. Now you’re a matchmaker.

Andrew: The hospital says, “I need a nurse.” You have a list of people who happen to, because of the way that you were targeting when you got started, happen to be in the same state. You go to them and you say, “We have a job opportunity. Are you interested?” And you send people over, and you get paid every time they join.

David: Right. When you spoke of the software, this was people. Let’s take the metaphor and go over to software as a service. Who bought your software? What are they using it for? What other things does that person need, either upstream or downstream, of what they are doing with your software that would either make their life easier, make things faster for them, or make things more profitable in whatever it is they are doing? Either save time or save money.

If you ask those two questions; upstream and downstream of whatever it is that you are doing, you will always find money. Don’t get me wrong; it’s a little bit hard for people to do that when they’re focused on their business. So, typically you have someone like me come in and say, “Let’s look at this,” and then we can do the brainstorming upstream and downstream. And you also need someone who’s not been in your market so long because a lot of times because you’re in your market we’re told to niche, niche, niche, niche. Then we get a little bit blind so it’s available. And we’re also told not to diversify. If you look at my website, you see I work with robots, jet plans down to vitamins and software.

That gets to a point where I can see a great many different types of products and services that are available, right? If you go there, Kawasaki’s Robotics, heavy industrial equipment. School Zone, that was flash cards and laptops. Ensemble, that was the nurse company that then turned into Nurse Place. But then . . .

Andrew: Ah, yes. Here’s where it became this company now. This is their name, Ensemble. What does Ensemble do?

David: Ensemble is actually a piece of software that actually does an evidence-based management system for hospitals and universities. So it actually comes in and says, okay, this person’s in accounting. Based against their peers, do they know everything an accountant would need to know? They do a 360 degree assessment of them, and then they basically match them against everyone else in the department to find out are they actually up to par and improving. And are they getting the training that they need?

Andrew: I see.

David: Role-based, not job-based because what they found in the nursing situation is if you help the nurse know and understand her role, then everything from doing the administrative work to changing bedpans to being a good, friendly nurse to the patient was part of the role of being a nurse.

And so that’s what they’ve evolved to from a Facebook for Nurses. Then they’re in software and human development and [??].

Andrew: This is what they became after all of these changes that you’re talking about. Look for revenue. Where else can we find it and so on?

David: Right. And now that they’re software-based I believe that. I believe if you do the research, you’ll see that they got picked up with a partner, I’m going to call El Severe [SP]. El Severe is like a 400 year old multibillion dollar publishing company. It is now their partner. They wouldn’t have been able to get there unless they came through the route of “We did the nurse piece. We did the social media piece. We did the membership piece.” Okay, now let’s move up the line now to software, and then they become more attractive to other companies.

Now this company is sellable. This is one that they would have built [??].

Andrew: Yeah, I peeked through my notes. This is the before shot. This is where they started, and that isn’t sellable as a business. This is where they moved to and this looks like a Marcel business. Their design looks better too, but the business idea as you’ve explained it is better.

David: Yeah.

Andrew: All right. Let’s move on to the next big point, and again we’re going to come back to this business that you worked with. But the next idea is find the profitable offer. This is the offer that they ran. You said they did both education and employment. What is Chamberlain? Oh, a college of nursing.

David: Right.

Andrew: So what is the deal that they had with them?

David: So they were actually selling leads to Chamberlain. Chamberlain was looking for nurses that needed to continue education or were going on to start. Ensemble, the nurse company, at that point had all these nurses. They had a bunch of nurses in the membership, and they were then selling leads to Chamberlain. And Chamberlain was advertising within their community that they had.

Andrew: I see.

David: And that was a profitable offer.

Andrew: That’s pretty typical where someone has a mailing list and they say, “I can’t keep creating products, and I can’t find advertisers for it. I’ll partner up with someone, and every time a member of my mailing list goes and signs up I’ll get payment. That’s essentially what it was, or did they take every lead fast . . . Actually how did they get the leads? How did they get their people to convert into Chamberlain leads?

David: Well, actually Chamberlain, there’s a couple of things that they did. I have a couple of models here. One of them, they had banner ads within the community. That was one. And the other piece was . . . Actually I remember being in a meeting. I was actually going to do lead generation straight into a Chamberlain landing page and drive leads, like an affiliate because, again, we knew AdWords. We knew how to get nurses. We knew where they were, so it was a matter of using AdWords, a skill we already had in our quiver. And actually push them for lead generation for Chamberlain.

Andrew: To be honest with you, that feels like a desperate move, that a company that’s doing well. Really?

David: Wow.

Andrew: Isn’t it a desperate move when they’re saying, “We’re now going to buy AdWords and send it to Chamberlain’s website so that we can get leads for Chamberlain. Then you become your main focus as a business. Then you start to become an ad buyer.

David: But wait a minute? If this is something that’s easily set up, you already had the market intelligence, it just basically runs itself. Okay, I’m going to take . . . I hear what you’re saying. I’m going to take a step backward.

Andrew: Mm-hmm.

David: Okay, so the work I was doing with Fleetmatics [SP] that was the fleet GPS system. That revenue stream, for me, was $9,000 a month. That stream for them was $20,000 per sale. So if you already had the market intelligence, and it’s easily set up, why not get the money? Because that reduces your burn. It’s not a desperate move if you already have everything in place. We already had everything in place because we learned the skill set when we were placing [??].

Andrew: All right, I get it. It gives you some room to experiment with ad buys and see what you can learn about buying ads for nurses. At the same time, I am so single-mindedly focused that I wouldn’t do that, but I accept that that’s what worked for you guys. If someone comes in here and says, “You know, we could start doing ad buys for,” frankly, if they even come in and they say, “We should be doing software for entrepreneurs,” I say, “No, no. We are focused on education. We don’t get away from that.”

David: But, here’s the thing. You have people who are available within your community. I remember when we spoke about this early one, I was like, “Andrew, if I were you I would set it up so that you had this community and I would do this that and the other thing,” and then lo and behold, you migrated to that piece where it become a profitable thing. You weren’t just giving the information out. You built a following, and now, the following is big enough with your critical mass, you’re in a position that you could say, “If you want access to this stuff it’s going to cost you some dollars.” That’s a good model. That model is the same one that they were using. It’s like, “Look, we’ve built this community.

Now, how can we leverage the community, keep it growing, and just find other revenue streams?” As a CMO as well as Chief Revenue Officer, where can we make money here? Where can we show revenue dollars to the bottom line? Because I was an SCO pay per click media [??], I said, “Oh, what we can do is,” and I started making connections and moving things around. Again, it wasn’t costly to the CEO. It wasn’t anything to me. I could outsource it, and it actually created revenue, so it depends what your focus is.

Andrew: Okay, fair enough. We’ll see what the audience thinks, also. I like when we have a disagreement, or different points of view.

David: No worries.

Andrew: I actually would like more disagreements here, but when we have different points of view I like to hear the audience because it does bring them out. It does make people say, “Andrew, you’re stupid. Now let me give you some reason behind it,” or, “Andrew, you’re brilliant. The other guy’s not right.” I don’t mind as long as people have solid information behind what they’re going to say to us. Onto the next big point. There is it, which is to borrow credibility. You did that when you worked for this company. I’m going to just bring up their Facebook. This is from Facebook. There it is.

David: Hugh [SP]. Borrow credibility, absolutely. Look at those pictures. Do you see the Rolls Royce, and what not? That’s one piece of it. Those pictures speak of a high-end product.

Andrew: You’re saying this is the way that you also borrow credibility, with the photos that you post on Facebook and the way that you communicate what your brand is about.

David: That’s one way.

Andrew: Okay.

David: The other way that I was actually really thinking of when I said that was, on their website, we got press, I believe it was the LA Business Journal, several trade journals, ABC, NBC, Fox, The Wall Street Journal. We took all those icons, put them on the website, “As seen on,” because then when you’re in the marketplace because you have the credibility…

Andrew: Here, this is from the site. Where is it?

David: Right. I said, “Just put these at the bottom, and put this into your investor’s package.” Why? Because, when I’m speaking to investors about this particular project they want to know that you already have traction in the marketplace. When you’re a startup, like a real startup, you have nothing and you have to borrow credibility from somewhere. So, to be able to say that these people have covered you says that you have some credibility, like the market does care.

Andrew: Okay.

David: We also did some work on Birchbox. Birchbox, they have well over, I believe, 200 reviews on Birchbox, so now the investor can say not only do you have market credibility but you actually have customer reviews and people saying stuff about your product. Subsequently, just this past weekend, they were able to take all of this credibility, go sit in a meeting with investors, and guess what? I believe they’ll be funded within the next couple of weeks. Done. Why? They had these things set up beforehand and not just a good idea, you see what I’m saying?

Andrew: Okay. All right, and you’re saying even being in Birchbox added credibility to them?

David: Right, because people know what Birchbox is, they have feedback from the marketplace, and now people are looking for it in stores and they were looking for what? Distribution. So, since they now have market credibility, people are saying, yay, nay, we liked the product, we didn’t like the product. Now when they go to the Neiman Marcus or the Macy’s, they can say, “Look, we’re out in the marketplace. We’re already making money online and guess what? The marketplace is saying that, ‘We like this,’ and, ‘This is an underserved market.’ But all these things add up in the narrative that they speak that gives them credibility and value to whoever they’re speaking to.

Andrew: Okay. All right. Let’s move on now to the final point. There it is: Move to where the money is. Great line.

David: Business 101.

Andrew: Yeah. Let’s bring up the company that did that. Again, I’m opening it up on a tab, but there it is. What is Videoo, with two o’s?

David: Videoo is a mashup between YouTube, Twitter, and Reddit, meaning you can take a video, upload it to this particular application, along with the hashtag. It will then put them all into one playlist. Then you can vote up or vote down the video that you like. So now you have customer interaction mashed up with video mashed up with the hashtagging of social media.

Andrew: Okay.

David: So for customer engagement, for a contest, or product reviews, this is a perfect application. They’re new in the marketplace.

Andrew: Okay. So then how did you help them find the money?

David: Well, they were doing plays at the network level, meaning ABC, NBC, Univision, that type of thing. They were looking at television platforms. Why? Because television platforms have the biggest eyes. What did I do? I sat and thought about it for a moment. I said, ‘Hmmm. Music. Musicians are looking for customer engagement. Let me go into the entertainment side and let me use this here.’ I’m finding that that is where the money is.

Andrew: With musicians is where the money is?

David: Not even with musicians, but in the entertainment piece because music videos are the most viral things on the planet number one. Behind that, if you drive interaction in those particular cases, you have merchandise sales, you have album sales, you have that type of thing. And, again, they went to the network platform side, I went at the consumer brands, big companies, like large beverage companies and whatnot, who aren’t necessarily looking for [??], but they’re looking for engagement and looking for branding. So there’s more money there.

Andrew: It looks like they haven’t gotten it yet. I can see that you’re saying, “Look to see where the revenue is.” It doesn’t seem like they’ve gotten that, right?

David: What do you mean?

Andrew: Have they figured out where their revenue is yet?

David: Well, I have. I’m the business development manager. I’m in those conversations right now.

Andrew: Okay.

David: There’s more money, just like with Kawasaki, in different underserved markets for the same product.

Andrew: OK. So then where did they find their revenue?

David: I’m finding the revenue right now. Can you see me?

Andrew: Yeah. Yeah, I’ll bring it up. I was looking at their site, but there it is. Yes. So where did they find their revenue then, or where are you finding it now?

David: In the entertainment space.

Andrew: By going into entertainment. Can you be more specific? What did you do?

David: I will say this. There are some protocols within entertainment in the music side that are very, very profitable. One of them is country music. Another one is rock. They are looking to actually continue the experience of the customer at the concert.

Andrew: So the musicians are paying to be connected to them after the concert.

David: Right. That’s the whole thing. If you think about musicians, look at this for a minute. A musician is a small business. It’s like a startup. Their product is the music. That’s what they have. The typical artist is about 7-10 people. It’s really a small business. Now, what do they need to have? They need to capture a mailing list. They need to drive customer interaction. The cell phones that everyone has with the selfies is what the video product does. Then they now know exactly who their customers are, they’re driving interaction, they’re building a list. If you have that, guess what? The next time you’re playing at that particular venue, you push the button, you drive people, you make money.

Andrew: I see. So now they’re partnering up with musicians and those musicians are using this platform to build their mailing list and the musicians are going to pay to be able to do that.

David: Right. Yes.

Andrew: That’s what you’re thinking anyway, but you’re not there yet.

David: I am in the conversations. I’ll put it to you like this: I’m right where I need to be.

Andrew: Let’s step away, then, from video. The idea here is you want to move where the money is. So what you’re saying is, ‘Look to see who has the revenue, where’s the market that has enough money to pay and help you build your business.’

David: Yes, and I’ll say something else too. The SAS model works in certain markets, and the software as a service market does not work in other markets because with anything, and I want to really stress this, any one of these applications or any one of your ideas is just a tool. But it takes someone from just the tool to but it takes someone from the tool to a result that they actually want or need in their business. That gap is really where the money is, and I typically play there.

Between the idea and implementation to result, that’s the biggest piece, because I could give you a hammer and you can build a dollhouse, a doghouse, a castle, or a bridge. Every one of those is going to actually bring more money, but it’s the same tool. You have to get really clear that it can be used in multiple places. And again, that takes, typically, someone stepping back, coming from several different markets to see “where can this be used?”

Andrew: Okay. All right, so that is what you do. You help companies find their revenue, and help them grow their revenue. We’ve talked about a few examples, and if people want to follow up with you, there’s this page that I’ve been showing quite a few times. By the way, the reason I’m showing that page every time I go to a webpage is for some reason, the software that I’m using right now, won’t allow me–here’s what happens when I just try to show any old webpage: Blank! Until… I show David’s page, and now I can go back to that same tab.

David: Wow. So I guess I’m special then.

Andrew: Weird. It will not show it unless I first show your page. I don’t understand. Actually, I think I’ve got a sense of why, and now I’ll have to and troubleshoot that.

David: Mm-hmm.

Andrew: For now, though, I will say thank you, David, for doing this. You do work with start-ups, you do work with companies that are further ahead, and the best way for people to connect with you is it to go to–in fact, for me the best way to see any webpage today is to just go to, but…

David: You could either go to or you can go to

Andrew:, and you prefer that to

David: Well, either or. Both of them will get to me. One’s my celebrity site, and the other one’s my actual consultancy site, which shows client results.

Andrew: Gotcha.

David: And what I’ll do for this audience is if you call and tell me that you came from Mixergy, we’ll spend fifteen minutes and we will find out another way for you to make revenue quickly with your business, and then we’ll work from there. I typically charge money for that consultation, but for your people, if they call and we set up an appointment, we will find a revenue stream for you within that first consultation, and then if we decide to move forward, we’ll do that. But I’ll do that for your folks for no charge.

Andrew: Whoa. All right, that’s a really big offer. There’s a way to really shock people and get their attention. All right. And the phone number is right up on the site. Do you want them to just call you cold, or shoot you an e-mail first?

David: Shoot me an e-mail first.

Andrew: I would suggest that, too.

David: Yeah; is my e-mail. It will come to me, and what I want you to put in the subject line so I know it’s you, so you can take advantage of this offer, is say “Mixergy offer.” Put that in the subject line.

Andrew: Sure.

David: So if you email, “Mixergy offer,” I will respond to that and we’ll move forward. If you just e-mail me and say “Hey, Dave, I thought the thing was great,” I’m going to say “Great, thank you for the kind words.” But if you put “Mixergy offer” in the subject line, then we’ll get back in touch with you, set up an appointment, we’ll have our little debrief, and we’ll figure out what we can do next. But the goal is to help you find another revenue source as quickly as possible, that is low cost, very high value, and low risk.

Andrew: Well, that’s a really generous offer. I appreciate you doing that. Wow. Thank you and thank you all for being a part of it. Bye, everyone.


Master Class:
How to use smartcuts to build faster
(the way hackers, innovators and icons accelerate success)
Taught by Shane Snow of Contently

Master Class: Smartcuts

Report Bugs

Master Class Toolbox

Course Cheat Sheet


Andrew: This session is about how to accelerate your success. It is led by Shane Snow, founder of Contently, which helps brands build high value audiences, and helps journalists build a career doing what they love. This session is based partially on his experiences at that company, and partially on this book, which I highly recommend, Smart Cuts: How Hackers, Innovators, and Icons Accelerate Success. The reason I love it is because it’s so well written. It really sucks you in.My name is Andrew Warner. I’ll help facilitate. I’m the founder Mixergy, where proven founders like Shane teach. Shane, thanks for being here.Shane: Hey, it’s my pleasure. It’s great to be back.Andrew: You’re killing it with Contently, but a few years ago you ran this. What is this site right here? (??)

Shane: Yes. This is site that I worked on for a couple of years. It’s called Scored It, and it’s essentially a proto Pinterest. It’s like a very crude rudimentary Pinterest before Pinterest. This was my project for a couple of years. It feels like, looking at the success of Pinterest, it feels like I missed a huge opportunity, but it was an incredible learning experience for me as an entrepreneur in what not to do when you’re trying to build a company.

I learned a lot of lessons with it. Primarily, that you need to get over yourself, and show people your ideas early on, and be willing to launch something. I spent so much time putting everything that I had into this, and being so nervous about what would happen if people saw it. It wasn’t quite perfect. That by the time I was finished with it, well sort of finished with it. By the time I launched it, it wasn’t what the market wanted, and there were other things like Pinterest that were coming out that were actually what the market wanted.

This was kind of my missed opportunity, but that taught me a bunch of valuable lessons. I’m glad for it. Although, I spent a lot of time on it. I think a lot of people probably feel similarly about their projects.

Andrew: What’s one mistake that you made that anyone who reads Smart Cuts will be able to avoid?

Shane: I think a big one is, kind of a (??), almost a skip to the end of Smart Cuts. One of the (??) of the book is that if you want to build really big things you can’t do it alone. It can be easier to build big, incredible things, and do incredible things then to do sort of smaller things, but it takes the help of other people. One of the big things I learned from this is I was working on this by myself, kind of refusing to show it to people for fear of (inaudible)

People would take my ideas, or that I wouldn’t be good enough, and I’d be judged. Building my current business, Contently, I have two co-founders that I split the mental work load with, but that together we’ve been able to rally the kind of support that you need to build anything. I think at Scored It I was to married to my own ego, and I own precious ideas, and wanting to do it myself. Then realized that it was foolish if you want to build something that actually impacts people’s lives.

Andrew: We have a lot that we’re going to be covering here. I just realized that one thing that we probably left out is the section of your book about mentors. There are a lot of people who do believe that they need help, but they don’t know how to get it. You say that when they try to get it they do it in a foolish way. Let’s add that to the session later on.

Shane: Okay.

Andrew: First, just so people realize that you did get past that stage. That you have done extremely well. Contently now has these clients. How many Fortune 500 clients do you guys have?

Shane: We have, last count, we have over 54 Fortune 500 clients. Probably we’re at something more like 70 now. These are the logos of the different places where we have writers from. We have about half of the journalists in America have profiles on our platform as freelancers.

Andrew: Oh, really.

Shane: Yeah. It’s kind of incredible. It started out as my friends in journalism who are looking for work. It ended up building a platform where anyone who’s a journalist can create a profile, and showcase their work, and use that to get work, but we collect the data on what you write about, and how successful your work is so, that we can then match you smartly in sort of a way with very smart publishers. For us most of those are brands like Coca Cola, and American Express that to hire writers, reporters for really good rates to tell stories for them. We’ve built a huge business off of this. It’s huge for me. We have about 78 employees that are . . .

Andrew: What’s the evaluation of the business now?

Shane: We’re a private company so, the valuation is kind of one of those things our investors don’t want out there too much. We’ve raised over $11 million, and we’re making eight figures in revenue, and growing very quickly, tripling every year. I think if we keep tripling every year we’ll eclipse the world economy in a couple of years.

Andrew: Over 10 million on revenue.

Shane: Yes. All right.

Andrew: How old’s your company?

Shane: Not quite four years.

Andrew: Wow. All right. Let’s go on to the big board, and see how everyone else can do what you’ve done, or grow based on what you’ve learned as you built up. Here’s the big board right there. The first thing you say is that we should apply the Frank Sinatra principle, right. You did that. How did you guys do it?

Shane: The, Frank Sinatra, principle comes from the song New York, New York. In the song he says if I can make if there I’ll make it anywhere. It’s this great classical line. There’s something about this song that captures the essence of being an entrepreneur, but also something like human psychology where we look at for judging people that we want to work with, or companies that we want to work with we can look at their kind of years of paying dues.

This is one of the concepts I explore in my book about how the paradigm of pain (inaudible) how much time you’ve spent doing something doesn’t necessarily correlate to how good you are, or much you merit a job. This is true from who becomes Fortune 500 CEOs to who becomes president of the United States. That the correlation between time spent, and dues paid it’s almost not correlated to how successful you are, or how good of a leader you are.

But what is, or what is a much better proxy to how good someone is this Frank Sinatra principle. Have you made it somewhere else that’s similar, or slightly lower down on the ladder? I’ll illustrate this with quickly with my journalism career, and then with what we did at Contently. When I first went out as a journalist I wanted to write for Wired magazine, which is my favorite magazine. Very first thing I did is I overreached. I pitched the features editor at the magazine.

I said I have a great story. He said, hey, I appreciate the enthusiasm. Come back in a few years kids when you have some experience. We just don’t print people that are without many years of experience. What I did is I went to the very lowest on the totem pole publication that was sort of in Wired (??) that I could find blogs in the same category. I pitched them, and I wrote for them.

As soon as I’d written a few stories I went one level up. Just a shade higher, a shade more creditable than these low level blogs. I wrote a few stories for them, and then went one level up. I went from the Next Web, to Gizmodo, to Mashable, to Fast Company, and within six months’ time I went back to Wired, I said, hey, editor at Wired, remember me. Six months ago we talked. I’ve since written for a Fast Company, and Mashable, and Gizmodo, and Next Web, and all these other places, basically, if I can make if there I can make it here.

Here’s my story idea. They ended up printing my first story for them. We applied this same idea that people are willing to take a bet on someone that’s coming from one wrung lower on the ladder if they’ve proven kind of by association that they’ve made it in New York. For our company what this was is we were three guys that had, we were entrepreneurs, but we didn’t have any big successes under our belt. We wanted to get clients that could pay our journalists really well.

We wanted to work with New York Times. We wanted to with the Coca Colas, but you can’t show up to Coca Cola, or the New York Times, and say, hey, we’re no one. Please work with us. That’s totally overreaching. We did what I think a lot of very smart startups do is we started small, very low on the ladder, and we borrowed the creditability like Frank Sinatra from the people we worked with. The very first thing we did is we sold some clients that no one had ever heard of on our services based on, sort of, the merit of our services.

We stuck their logos on our website. These were not anyone you would know, or respect necessarily, but then as soon as we had some clients in our office who were rather than just owning the niche of these kind of crappy, small not ideal clients, and just going for that, and expending broader there. We went to one level up. We said who’s slightly bigger, or better than these clients, and let’s pitch them.

We showed the logos of the clients we’d worked with before. We pitched that next level client. Then as soon as we landed those clients we put their logos on the website. We replaced the old ones. Then we went to the next level, and then we went to the next level. Until after about nine months we were pitching American Express, which became our first Fortune 500 client. The pitch for them was not hey, we’ve been in business for nine months, but we’re really great guys, and we have a good product. Please trust us. Because that doesn’t work with someone at that level.

The pitch was look at this huge roster of clients that we have worked with that we’ve built up to. In fact in a very short amount of time we have such momentum in the market people are talking about how fast our star is rising, and don’t you want to be on that train too. That’s the idea of the Frank Sinatra principle. You move from New York if you’re a lawyer. You go to Kentucky even if you’re the worse lawyer in New York in Kentucky they say, well, she was a lawyer in New York. She must be good. That’s kind of the idea of the Frank Sinatra principle. Again, back to this idea of ego. We all think that we can work with American Express, or we can write for the New York Times, or Wired magazine, but it’s proving the creditability that you have what it takes. It’s difficult in this way of borrowing from a brand that’s similar a little bit, a step away, is a very effective way to do that.

Andrew: How is that different from just paying your dues? From saying to someone who’s listening to us, “Go out there, spend some time before you get to American Express, sell to a lot of smaller companies.”

Shane: The idea is you reverse engineer your own series of steps to get to the big goal and you make them steps that can be accomplished very quickly. To work with American Express, they might want to see normally that you have five, ten years of business experience. You’re not spending five or ten years of business experience if you go this sort of non-traditional ladder climbing route. You want to break things down into steps that you can complete immediately.

So, again, back to my journalism example, most people start out as journalists as an intern at Wired. This is conventional dues paying advice. You get an internship. You work really hard. Then you get a job as an entry level fact checker and you work for a year or two, and then you get upgraded to a junior reporter. You work for a few years and you get upgraded to a mid-level or senior reporter. Then you wait for someone to die of liver failure and you finally get your shot at being a columnist or a feature writer. Suddenly ten years have gone by. If instead, you jump from ladder to ladder. You jump from different places.

Andrew: Rapidly trading up.

Shane: Exactly, rapidly trading up.

Andrew: The example you give in your book are Brigham Young University students who don’t drink at night, but instead they play this game called Bigger and Better. They start out with one little thing. They knock on a door and say “Do you have something bigger and better than this?” And they go from a paper clip to a stapler. They go to the next place with the stapler and say “Do you have something bigger and better than this?” That’s what you want us to do, rapidly ask “What’s bigger and better” on our way towards this goal that we have, and for you it was companies like American Express.

Shane: Exactly.

Andrew: Ok. Alright, and as we can see right on your home page this is actually… I was looking to see ‘How do I describe what Contently is?’ And right on the home page is your client. It does speak volumes. You don’t have to tell me so much what you do when you say here are the people who trust us. Then, I pay attention to what you do.

Shane: Right. If you see Google and GE, you say “Oh wow, these guys have made it in New York” so to speak, and maybe it’s worth talking to them.

Andrew: All right. On to the next big one. Which is, you say “break the rules.” You guys use to work with clients that you now call, or publishers that you now call “crappy clients.” They pay low rates, right?

Shane: Yes. So, the break the rules thing is really interesting. Essentially the premise of the book Smart Cuts is that when, throughout history in any industry from business to science to art, to government. Whenever you see breakthrough change or step function improvement rather than incremental improvement, it’s when someone has broken the rules that aren’t rules. They have gone against the common convention, or the common assumptions of their industry or field. Picasso was great because he broke all the rules of art that was contemporary at his time. You don’t always succeed, sometimes you break rules and you fall flat, but you don’t change the world by playing the same game that everyone else is playing.

Andrew: What’s the rule that you may not even have realized you were following in your industry at Contently?

Shane: The rule was… For us, we assumed that we were working with journalists and that the clients for our journalists as freelancers would be media companies. That they would be working for journalistic organizations. And so we went out trying to sell to The New York Times, and CBS, and NBC, and Esquire and these kinds of companies that journalists weren’t right for. They do journalism. What happened to us was… First of all that industry is a very tough industry. They are going through a lot of changes and the reason we have so many freelancers is because they were being laid off from these places. We are trying to broker work for them as independent workers but it is very hard.

These are business that are very resistant to change and technology because they are worried about more jobs being lost if they get more efficient. So, it was a slog until we realized that… One day our first big epiphany client was a company called, that I’d worked with as a designer years before. In the same week, or couple of weeks, we went to CBS and they said “Hey, we love what you’re doing. We have a big project for you. We want to pay ten cents a word.” Which is like sweat shop rates. Then in the same week or two weeks, fortnight if you will, which is owned by Intuit, a gigantic financial services brand. They said “We pay a dollar a word.”

So the light bulb went off for us that maybe there is a market for the talent that we’re brokering that is completely outside of the realm of what we thought was possible. Maybe there’s an unexpected source of work for these guys that the skillset that you have as a reporter and a story teller, and as a journalist could be in demand elsewhere. And we found that that’s the case and since then in the last three years the word content marketing the term contentment marketing has blown up and everyone is doing brand and content and native advertising. These are all euphemism for commercial company’s doing what journalist do best which is finding great stories and tell them, building relationships with people through story telling.

So this was in the early days very scary to us and to our users who said, you know, journalism is this pure crash, you know this is something we’re keeping the government honest we can’t do journalism for a company that has a marketing mission you know where the ethics. And so we struggled with all of these things about how do we address the ethic of this industry? And how do, it’s clearly a source of income for us and for our journalist how do we make this work.

And over the last couple of years what we’ve seen is that not only have people congealed around a source of code of ethics and that largely driven by the work that we’ve put on there, but also this is a market that no one saw coming on as fast as it did. And because we were willing to sort of say, sort of defy the faces of the old school media people from where I come from about what a journalist can do, we were able to build a dramatically bigger business then we thought.

I mean this idea of breaking rules, we do this all the time when we think about, you know, what are the products that we’re building things like deleting features, are going against kind of what is expected. I mean you see talked about.

Andrew: One delete more of the features is we’re going to get to in a moment, is do you delete something that’s pretty shocking. By the way why the company… why do you pronounce it contently instead of contently.

Shane: So the story is that we originally were calling ourselves contently, because it’s a content based business. But people kept saying, contently. And so we eventually we decided to go with that, what the users are saying, we’ll adopt that. But it’s kind of become part of our brand that we work with huge company’s, we’re a B2B company.

Typically that’s a very stuffy business to be in. But we’re known as being very update and I think that’s what keeps us positive internally.

Andrew: You’re just contempt, you’re fine.

Shane: Exactly. We’re happy, we’re upbeat, you see this with our design and with the way our office is, and the people that we hire. And I think that… I mean that makes me happy. So we own that contently is more than just content. It’s about happiness and value and love at some point.

Andrew: All right, fair enough. Next big point is you want to build from the tallest platform and you guys had a problem where writers would apply to write and what would they do?

Shane: So writers would apply to write and part of our challenge is we wanted to broker work between real professionals who could command high rates because that’s good for our business, it’s good for them because they could survive. But you have a lot people… there are lot of people who are willing to write for very low rates not journalist or sometimes journalist. But there’s this thing going on called the content farms were you search for something on Google and all ten results would be crappy sites like eHow and YSpeak these SEO sites they’re paying writers five bucks to write this content for the robots, for the search engines.

And we really didn’t want to be that kind of company so we wanted broker work for people who were really good that could command high writes, that could create content that people loved, and that people shared. And to do that we had to screen basically the good writers, the professionals with real journalism expertise from amateurs or you know people who hadn’t gotten there yet or people who were just trying to make a quick buck on the internet.

And so initially what we said, we had people self-identify meaning we had them sign up we said, what are expertise in writing about? Turns out people who are desperate for work, desperate for money will say they are great at everything. And so it’s very hard for us to… we’ll wanted to build a scalable business, we didn’t want to fact check everyone by hand, it’s very hard to get this business rolling with that problem.

And so what we realized is that the best… we tried all these things we had people write essays and it turns out that the people are most motivated were the people who were most desperate for money. And that real journalist were skeptical of like why do I have to write an essay like I have other options. So we evenly realized it’s almost like an oh da moment that you’re past work is the best indicated that we can see how good your writing is. If you’ve written for the New York Times, then that’s a good indicator that you’re a pretty good writer. Especially if you’ve written for them multiple times like if they had you back.

And at the same time we realized that writers aren’t necessarily Web designers and they want to promote themselves, they want to build a Website so we build this system that basically lets you build your own Website, put in all of our work, your clips so that we could see you past work as representation of you best selves and then screen writers based on that. You could actually do it through data now, which is really great and automated. But, the problem was. . .

Andrew: There used to be a search when I first interviewed you, it was self-reported right? You’re supposed to link to your articles.

Shane: Exactly, you’re supposed to link to your articles. You’re supposed to find all of your stuff around the internet.

Andrew: Mm-hmm.

Shane: And we’re supposed to trust that it’s you, and you’re not masquerading as Malcom Gladwell. So it was a big task, and what we wanted to do is to help them to say, “Type in your name and we’ll slurp in your work from around the internet,” which is itself, a standalone product. That is actually a very hard thing to build. You’re building a search engine, essentially.

Andrew: Mm-hmm.

Shane: There’s all this work that either our users had to do or that we had to do. One day we figured out that we could actually leverage other people’s technology to do this, and we could leverage Google to find all of the articles that someone had written online.

So, we talk about these platforms. A lot of people start with, “Well, we’re going to build the thing,” you default to let’s build it. What we started looking for was, “Who’s built something similar that we can basically co-opt?” We can stand on top of the mountain that they’ve constructed.

Andrew: Mm-hmm.

Shane: We ended up hooking into the Google and Bing API and making it so that we basically used their APIs to search for, so I type in Shane Snow, and. . .

Andrew: Is that how you built this? This comes up because of Google and Bing APIs?

Shane: Yes, so this gets built now in 20 seconds. So I type in Shane Snow, and we hit Google and we hit Bing automatically, and we find all of Shane Snow’s work at all of his publications, pull in all of the logos, pull in all the pictures and all the information in 20 seconds, or less. Then I can drag and drop and make it look nice.

It turned out that this was the killer feature that got us thousands of writers, that people who were slow to sign up when it was this arduous process, and they’d add five clips, but when we did it automatically for them, suddenly people loved this experience. They built these websites they were very proud of, and they told their friends, and we had this viral growth start to happen.

It could have been. . . It could have taken us two years to build this feature had we done it kind of the stupid way, which is how I built my old public interest site.

Andrew: Wouldn’t it have been better if you built it yourself, instead of using Google?

Shane: Totally. It would have been. . . Well, so, what we built in, like, five days, is 90% as good as it would have been if we’d spent two years on it. So it would be better. There still are false positives. There’s still bugs and there’s still problems, but done is better than perfect, especially when you’re in the early days of [??].

Andrew: So, you’re two years faster, and as a result, yes, you lose 10% more. . . I don’t know. It would have been 10% better, but it’s faster, and it works, and you’re doing it by leveraging someone else’s network, someone else’s platform. And that’s the way you want us to keep thinking?

Shane: Exactly. We do this all the time and anything. . . I mean, especially with stuff that we’re building, but even with our learning. I talk about, in the book, how kids who are given calculators earlier actually learn the underlying fundamentals of math faster than kids who are given a pen and paper first. So there’s something about this idea of giving yourself the best technology and a leg up first. Even if you think it’s going to hamstring you a little bit, what it does is that it gives you the jumpstart that gets you the accelerated learning in the beginning, and then that gives you much more time to go into, refine and optimizing, get that extra 10% much quicker than it would take otherwise.

Andrew: All right. Let’s go onto the next big idea, which is, the way I wrote it anyway, it’s steal. You want us to steal, not just steal, but steal from the masters. And you did it. How did you steal using this spreadsheet?

Shane: Yes. So, this is one of my favorite things that my friends call “Shane’s neurotic spreadsheeting.” One of my heroes is. . . Speaking of stealing from the masters, one of my heroes is Ben Franklin.

Andrew: Mm-hmm.

Shane: The autobiography of Ben Franklin, if you get nothing else out of this conversation, is go buy that book. Actually, it’s free, I think, on the Gutenberg Project. Read the autobiography of Ben Franklin. This guy was incredibly inventive, and I identify with him because he was a journalist and an entrepreneur.

He’s this incredible thinker who kind of bucked the common convention, which is what I’m all about. What Ben Franklin did, I have stolen from him, and consequently been able to learn a lot of things quickly. What he did was he decided he wanted to be not just a good writer, but an amazing writer. Most of us, when we want to learn a skill, either at a meta level, as a business, or as an individual, we, if we’re. . . If we go the conventional way, we’ll go to school, right?

Andrew: I’ll tell you, I went the conventional way. I said, “You know, I’m going to start writing on Mixergy. I need to learn how to be a writer,” because I never really cared about writing class in school. I went to Gotham Writing Workshop when I lived in D.C., and boy, this was horrible. First of all, they were really out of date. They believed that the newspaper industry was going to come right back and people were going to come right back, and people were going to buy newspapers. Which just was maddening! The way that they-

Shane: Wow.

Andrew: …they learn. The way that they forced me to wait to get to the next thing was just crazy making. So that’s a conventional method, and it clearly was a pain in the butt. Out of touch.

Shane: Yea! So what, what Ben Franklin did …

Andrew: Mm-hmm…

Shane: …when he wanted to become a good writer, the other thing that people do is they go for higher a coach or something and, you know, this gets at the mentorship idea. What Ben Franklin did, he said, I don’t want to learn from my peers, or sort of the local expert, I want to learn from the very best writers in the world, and I want to get as good or better than these people. So he took the prevailing magazine of the day, which I believe is called The Spectator, it was sort of The New Yorker of the 1700s.

Andrew: Mm-hmm.

Shane: It’s this great magazine from England with the best writing ever. So what he did was, he’d sit down with this magazine, he would take these very detailed neurotic notes, on a sentence level. Like here’s what a sentence essentially says, here’s what this paragraph essentially says. And he’d do this for a full article, and then he’d put the article away, and he’d come back in a few days, when he had kind of forgotten the story, and then he’d look at his notes and he’d try to write the story, write the magazine story from his notes.

So he was kind of doing this steal and copy, and then recreate, this deconstruct and then reconstruct process. And he’d write, you know, his article as best he thought like this is how the spectator would right this based on his notes, and then he’d compare his story to the spectator’s story. And then he’d look at what they did that he didn’t do, and in this process he learned about his, the things that he did by habit, that he wouldn’t have necessarily have picked up on. You know, the way he used vocabulary, the way he used sentences, the things he did wrong. And he’d do this over and over and over again, until eventually he’d brag that he was producing better versions of these stories than the original versions.

And so this is a concept that I’ve sort of stolen from him, and this spreadsheet that you’ve pulled up, is me when I decided I wanted to start writing longer stuff. I wanted to look at, and when I was working on my book, wanted to look at my favorite, the best writers in the world who were good at long form narrative feature writing. So this story was one of the, probably the, one of the best feature stories out there. It’s called the Great Zucchini by Gene Weingarten. Hilarious story. It’s hilarious and so well done.

And so what I did was at a sentence level, at a paragraph level, at a word count level, I mapped out exactly how this guy constructed this story, in a neurotic way. And you’ll see on the side, you know, number of words of this length, even, and this many syllables, and at a level of detail that it’s, probably, like why would this matter. When you go through this, and you map out stories over and over again like this, you start to pick up the tiny details the patterns of what make the difference between good writing and exceptional writing.

And so, I’d do this with all sorts of things, with writing, I wanted to write a non-fiction book, I went and I looked at writers like, this, and then I went and looked at great fantastic fiction writers or people from other industries. And I did the same neurotic sort of spread-sheeting process, so I could not just absorb other great art and try to emulate it, but that I could figure out why, what are the mechanics for what makes for great writing, and of course infuse my own style.

Andrew: All right so here’s what I see when I look at it. You broke it up by sections, so section one The Cox Family Party. Break it up further, each section in paragraphs. Paragraph one, lead GW jumps into the scene but doesn’t spell out what the occasion is, it’s almost a cinematic beginning focusing on the character while unveiling the setting. And then you break it down, sentence by sentence, you put each sentence in it’s own cell, and then each sentence gets a work count on it so that you can see it’s 20 words in the first sentence, 10 words in the second sentence, two words in the next one. Then you have your notes and then you out how many one syllable words, how many two syllable words, and this just gives you a deeper understanding of what he did with that article?

Shane: Yes, exactly! I learned how he built suspense, how he sets up characters, how he describes things and actually what I learned from Gene Weingarten, whose a great writer, what he doesn’t say is actually more important than what he does say. He’s very brilliant at this, and you only pick this up when you really dissect it. Also he uses a lot of one syllable words. Like his writing is so punchy-

Andrew: Right.

Shane: … cause he uses so many one syllable words and then punctuates it, once and awhile with a really big word, especially as you get further down the spreadsheet. And I found that you know, in my own writing I’m too robust and I’m too, I use too many big long syllables, words that actually slow the reader down. You can read one of his stories twice as fast as a story of mine at the same length. And so these are the kinds of things that you learn, and that, and so when I would write, I would say, how would Gene write this sentence or this paragraph? How would Gene open this story, and some of my other favorite writers you know? How would Oscar Wild do this? How would John Robson do this? And that’s what I mean by stealing from masters is when you get to the point where in your practice or in your career you’re having these sorts of heroes of yours guide not just your discipline, but kind of your journey as well. Asking that like what would so and so do.

Andrew: What did you learn in your book? In Smart Cuts you have a chapter open up with a story, that creates a sense of mystery. Then you go to another story, and then another story. They each build on an understanding that we need to have in order to unravel the first mystery that you just, put in front of us. Where did you learn that format?

Shane: So there… I mean there’s a couple great writers that do this very well. Charles Duhigg, if you read his book The Power of Habit, has a couple chapters that are built this way. But really where this came from, is the TV show Alias. So J.J. Abrams is one of my favorite story tellers, and he is fantastic and you see this thing that he does actually does in many of his movies too. Like the Mission Impossible 3 movie has this great opener where Mission Impossible 3 opens with this scene of Tom Cruise and he’s tied to a chair and there’s his girlfriend and she’s got the gun to her head and it’s this cliffhanger moment halfway through the movie, and then it goes back to the beginning.

And so the whole movie, when you want to get up to use the bathroom, you’re like “No but what if it gets to this part?” And so I studied how he does his story telling, to try and create this cinematic effect, and I don’t think I nearly capture the essence of how great a story teller J.J. Abrams is, but I love… For me it was about getting people to reach the end of a chapter and then end the chapter on a note where they say “Well, gosh I got to start the next chapter. It’s not that late I want to start the next chapter”. And so basically I looked at people that…

Andrew: I get that. And the other thing it does…

Shane: Thank you.

Andrew: …is because you started out with 1 mystery and then another story and another. And all these stories come from real life, real experiences. By the time we’re done with the chapter, we understand the first mystery and we have a conclusive understanding of why it happened. But we also have this layer of understanding that goes along with having multiple supporting stories. Speaking of the book, and here’s something I didn’t have in the outline, but I think it’s important. You say that to accelerate success, you need mentors, but you can’t just walk up to someone and say, “Be my mentor”. So…

Shane: Right.

Andrew: …what’s the better approach? And not just you, but Charles Sandburg said it in her book Lean In. What is the better approach then if we want a mentor?

Shane: So, the question I wanted to ask when I started this, was you see throughout history from Socrates to Star Wars to Steve Jobs, this mentor relationship that accelerates the student’s growth and success, right? Mr. Miyagi helps…


Andrew: …Steve Jobs had a mentor in the founder of- What’s his name? Cook into it, and a couple of other people that you mentioned.

Shane: Exactly. And, you know, Obi Wan Kenobi trained Luke Skywalker, right? And that’s how he got good with a light saber so quickly. And, so you see this is part of our culture. We understand that this mentorship relationship can be powerful, but when you look at the research you see that, actually on balance most mentorship relationships yield nothing. No better salaries, no better outcomes. Not even better likelihood of not ending up in jail. And so what I dug into is what is the difference between mentorship relationships that work and that don’t. And the big thing. And I don’t want to spoil too much, but the big takeaway has to do with the organicness and vulnerability inherent to the relationship. And the mentor guiding not just your practice, but guiding your journey. The thing that bothered me, is, you know in Plato was mentored by Socrates, right? There was some kid on the other side of the world that was just as brilliant as Plato, who had no access to Socrates. And like that sucks and many of us are like this, and we grow up in places where we don’t have access to whoever it is that we want to be our mentor.

And what were told, is to do this sort of weird networky thing where we find their email address and we ask them to mentor us. Or we show up to an event with a business card and we say “Hey will you please mentor me?” while your hands are shaking giving them your card. And this doesn’t work very well. It’s not an informal, organic, vulnerable relationship that gets built out of that. And usually the answer is “I’m sorry I’m busy”.

So what I looked at is through this story of Jimmy Fallon, who is one of the youngest success stories in comedy and now he’s the youngest night show host in 50 years. How he got on Saturday Night Live so quickly, as this kid who knew no one, who came from nowhere. And part of it is… Has to do with finding mentors that can guide your journey, that aren’t necessarily alive, and aren’t neccesarily people you have access to.

What you see is this pattern of credible people from, you know Jimmy Fallon on to others that they profile in the book, like Elon Musk, that they become obsessed. Like I’m obsessed with Ben and Franklin. Obsessed with incredible people and they learn their biographies, they study their autobiographies, they study the tiny details of their eating habits and their spiritual habits and their work habits. And part of what Jimmy Fallon did was he obsessed with Adam Sandler to the point that he asked himself the question what would Adam do? And he memorized his manager and like his own history and every line from every one of his movies.

And what Jimmy found is his mentor, who didn’t have any idea about who he was, who guided him through his journey as a comedian from that far. And this steep obsession that relationship that you have that the other person doesn’t even know. And through the book I talk about how this is something Jay Z talks about it; this is something that Lewis [??] talks about; this is something that this amazing shoe designer that I found talk about using Jackie Robinson as this focal point to help him to not only get through the hard things he was doing but also practices discipline. You don’t have to access to a great mentor if you have the right strategy for finding for I guess studying and obsessing over one person in the world, who can be your guiding star.

Andrew: And this spreadsheet that you have created isn’t just about anerosis [SP]. It actually worked. Here is your article in “The New Yorker”, which is not an easy place to get featured. we are not just talking about some blog. We are talking about a magazine, a publication now online too, with incredible history

Shane: And it was definitely an honor and I have some other stories coming out in the New Yorker pretty soon. As a twenty something, you know, who has just come in to journalism a few years before it’s incredible. I am kind of crazy to me. And I owe it to these people whose writing taught me how to write and like that. But its I mean it’s a small case study in how you can accelerate beyond the time that people lay off for this how long should it take to get in to New Yorker or to build a business or two or to learn a discipline.

Andrew: All right. On to the big board, Let me see what’s the next big idea is. It’s to build built to throw away as soon as possible. This is one of the things that you throw away. That’s shocking. Sorry we are deleting your account. who do you do this to?

Shane: [Laughs] So, in the early days, we had this problem of all these writers who were not good or who didn’t know they were good and all these kind of desperate scam me make money on the Internet types. And we had to reiterate on what we are doing with content, how we are screening people, the platform itself? and the common advice we get even from the forward thinking start up circle is to fail fast fail often test test test, you know Iterate, Iterate Iterate. But there is one tiny thing, I mean there are a couple of things that are wrong with it.

But there is one tiny thing that’s wrong with it is when you don’t or not willing to let go of what you have done before., it’s very hard to iterate completely in to again sort of break the convention that is holding you back from breakthrough success. So we had all of these users in the very first version of content [??] that we knew that there were some diamonds in it. But there were a lot of bad users. So we agonized over what shall we know do to agree to screen these writers s and get and sift them and all of that. And we realized that actually the easiest thing to do would be to delete everyone and make them re-sign up rather than take the thing that was not working and try to mold them in to something that was, Let’s just start over.

Andrew: Because when you are first looking for writers to participate, you were looking anywhere. You guys were operating out of a sense of desperation, so you went to forums, you went all over the place try to get people and when you do that indiscriminate search you end up with not very discriminating list of people and instead of adjusting you are saying we just deleted him.

Shane: Just deleted him. And we actually ended up. It was this terrifying kind of liberating experience, Wow, we just deleted a lot of users. Anyway we sent an E-mail that said beta was closed, sign up again later sort of thing or however we did it. We ended doing this two times where the next version we built it to throw away. We said we are going to learn in this one month period. We are going to learn more even more and we are going to figure out what’s wrong and what’s not. And then at the end of that we are going to delete that beta and do it those users we are going to throw it away.

Andrew: Until then at that point we are deleting you. if you sign up, there is a temporary relationship

Shane: Exactly. This is Beta version 2. You know, thanks for joining.

Andrew: What else did you delete so deliberately? I know the first version of the site, the first version of the software you deleted and started over

Shane: We deleted the software.We deleted the users. We deleted. we essentially deleted the software twice I believe how many times the software got deleted. And we restarted with users I think it was three times. The only think that we delete though often is features. so we track everything that often in the site down to the mouse movements and a lot of it is synonymous tracking. But there are also such things that people will tell you they want or they need as, your user, your customer. And then so what we do is we track these and the things that people aren’t using, or that 20% of our users are using we end up deleting. And it’s a little bit scary but it’s surprisingly liberating that what happens when you kind of like clean out our closet, you throw out the trash or you move to a new house and you don’t take your stuff with you. That you become suddenly unencumbered and you don’t have to make excuses for the stuff you old had.

So you know when you have this old novelty t-shirt that you love and it has sentimental value and you make excuses for why you’re keeping it. And it loads your luggage down. But once you throw it away you don’t think about it. And it actually helps you to move on and maybe dress a little better next time. That’s kind of the idea.

Andrew: David Cohen, actually who reintroduced us he’s an investor in our company. He said to me that you should delete features just to see if people complain. Because if they’re not screaming about it they probably didn’t care about it, and weren’t passionate about it. And so you should get rid of it as a way of staying lean. That’s what you going, did you ever delete anything and have people scream at you?

Shane: We deleted… we’ve had people scream at a couple things we’ve deleted. I don’t know if we’ve brought anything back, because we… I’m sure we have I can’t think of an example though. I mean people have complained about we deleted green button and they want it to be green again or whatever things like that, and you ignore that.

But there’s not been anything that we’ve deleted that everyone has flipped out about and it’s because we’re very deliberate about it, but we know that people aren’t using it. Sometimes we’ve deleted stuff that people are using, but we message to them that this is gone because X is taking its place and then they understand.

Andrew: All right, on the board, speaking of David Cohen, the founder of TechStars. Next point is to focus on small wins and harness momentum. There was a period were you guys weren’t doing as well as you’re doing today. We’re you guys were close to running out of money and you decided to raise how much money?

Shane: We wanted to raise a million dollars.

Andrew: Okay, and it’s when you did it, I’m assuming people saw how big the business was going to be and they said sure because that’s the way things work sometimes.

Shane: We had a whole line of people outside of our office offering us, you know million dollar increments. Some were saying two how about ten, no.

Andrew: You know we get a little bit jaded because it seems like everyone’s raising not just a few thousand bucks, but millions of dollars here and there and it seems so frickin easy. But as you say, it wasn’t so easy for you. What happened?

Shane: It’s not, and so many… you only hear the Cinderella story’s and actually a lot of time those stories they’ve been tolling for years before they get their magical break. But most of the time you’re spending a lot time and effort and you’re not getting the deal you want. And entrepreneurs say, we’re optimistic, and we believe in ourselves and we have this great vision. We often do over reach.

And so what we did, we tried to raise a million dollars and we didn’t have that much revenue, we didn’t have that much traction. And we were banking on well we have great team but people said, well what is your team. You haven’t sold a business before, you know you’ve built stuff but you haven’t sold anything.

And so we realized that it’s harder to, you know again back to that analogy that you started talking about, that I talked about in the book of the students that they’ll trade the toothpick for the pen, for the sticky notes, for the flowers, and eventually they get a television set.

If you go door to door and you ask people to give you a television set they’re going to call the police or they’re going to say no. But if you go door to door and you break the task down in to a serious of tasks, when you show up with a bike and say would you trade me this bike for a television set it’s a much easier ask.

And so that’s what there’s this, in psychology they call this the psychology of small wins. Small wins are small tasks that you can complete very quickly and easily and they have a low chance of failure. But that to us that sense of progress even a very tiny win is very motivating but it’s also very motivating for people who are watching you for outside supporters.

And it’s interesting when you look at statistics around companies that can raise money and how much money they raise. And you know get big grants and customers and all of these that momentum appears to be more important than sort of the raw numbers of success. So a company that’s smaller but this is growing faster or appears to be moving faster, having lots of wins over and over again will get better deals from investors then a company that is bigger than that company.

And so what we realized is we were reaching to big but if we could go a little smaller a lot smaller then we could take that and take the success that we could get from a smaller round and parlay that for something bigger.

Andrew: How small what was the amount that you guys went for?

Shane: We ended up raising $300,000.

Andrew: Three hundred, that’s what you went for?

Shane: Yes and it was a third of what we wanted, which it’s kind of disappointing right. And you feel like a little bit less of a person, right.

Andrew: And you clearly said, by the way this is from, this is from the deck where you guys were trying to raise money right, you have clearly said, this is what we are going for.

Shane: [laughs] To be on the honest side Yeah, we were raising $1 million both the…

Andrew: And when you didn’t get, frankly it wasn’t easy even to get $3000.In order to get it, you said,” Look if we get in to Tech stars” and looking at my notes here “we will raise money and after that you are going to do better”. Right Give us three hundred thousand. we will use that to get in to tech stars. And as a result of getting in to Tech stars, what happened? what else did you tell them?

Shane: Yeah, we said. we are going to do; we are trying to get into TechStars. TechStars, it isn’t a solitary program, there is some brand cache, there is this Frank Sinatra thing. With that if you make it in to TechStars. We are going to go through TechStars and then we are going to raise a $1 million or $2 million and over that three months, you are going to triple your investments. Basically it’s like, you are going to take a small win, we going to do this TechStar thing, and then we are going to go for the bigger win and that was the pitch essentially to the investors and we took a little more delusional than we would have had, we would have been able to raise million dollars in the beginning. But it actually made it much easier much faster to deal. And actually the things that happened is we when we were talking to TechStars people, they were pretty interested. But they are on the [??] they all have good companies. And when they heard that we were talking to these investors found a collective who were these great investors.

Andrew: And they were a collective great group of people

Shane: Yeah. They were moderately interested. They were intrigued by the TechStars thing. When the TechStars started a way to talk to them they said well a friend of collectives is interested in you. Then we ought to get you to the tech stars. And then we went to back to the friend of collectives and then we said TechStars is interested in us and TechStars are letting us in. They said well, if you are going into TechStars and we going to give this money. This is going to be a great deal for us.

And that’s what happened. It kind of played off of each other. And then we did the three month TechStars program. And then immediately after the three month program, we were able to raise $2 million. It took us six weeks when normally it would take three to six months. And that was because we broke it down into a series of smaller wins rather than trying to eat the whole elephant at once. And of course there was a lot of other dominos that have to fall in place, but that was the idea. Rather than being supplied for. No it had to be a million but then we fail that don’t get this because we said and everyone heard us say it. That didn’t matter. What mattered was building a business and getting out of our one way.

Andrew: And you are in and you are actually read about. they were starting to tell your story on their site, Right. There you are. You were one of the companies that they were proudest of having had you in the program. Right on to the big board again. Next big thing is to kill complexity. And you guys decided that even though Google Analytics exists, Clique exists, chart beat exists. You are going to create your own analytics package. Why?

Shane: So our customers. So, why create our own? Again back to this, we should leverage this platform. someone else had built something. You know, we wanted our customers to be able to see that the content they are creating were turning into a return on their investments. So that they can continue being customers and also they could create content that’s good for their business. Good for the world. Interesting for the journalists.

Andrew: Look we have these great writers they might they have signed up and they have. We have these great writers and look at how they impact your business. And they see statistics that show it, they are much more likely to buy it. Makes sense. Okay, that was your idea. Why create your own then?

Shane: Well there is a different between Google Analytics or Chart beat will provide for you and what we want toe. We wanted to show them that People spend so much time with your content and that eventually turns in to conversions and brand lifts. So there was, there were features that we couldn’t find on the market. So we wanted to build those features. But when we started building analytics platform the common thing and the very first thing that we started mapping out before we realized that it was a bad idea was there is all the data you can collect. You can put a JavaScript on page and you can get all the page views, you can get the referrer and you can get where they went next and you know all of these things.

We decided when we start analytics platform that we didn’t want to have any of the features that these other platforms had. So we probably had Google Analytics installed already. so we decided to and people gave us a lot of hard times at this. But actually we got a lot of buzz out of it that we realized an analytics platform that did not tell you page attributes. And didn’t tell you the most common attributes that kind of default you know, we didn’t tell you the shares. You have no idea how many shares are happening even though you cut on the page. We could collect that. We could show you that information.

And because we wanted to make it as simple as possible for the one goal that our clients have these content marketers they wanted to know how we are building our relationship with future customers. How people should be coming customers. Page views might correlate to that. But often it doesn’t, also you might be measuring page view shares certainly don’t correlate to that. There is also all sorts of data that allow people to share before they read the stuff.

And so we basically showed them a couple of metrics and it was how much time in aggregate are people spending with you across their visit so if I come back to Mixergy five times, there’s a running counter of how much time I’ve spent with you so how that relationship’s being built then how far down the page they get. Percentage of the story they complete. So those are the two things that we showed initially and people freaked out at first. They said, where are the page views, where are the shares? Shares are important and we said no. That’s too much to think about. One of my favorite analogies is Sherlock Holmes in Studying Scarlett, Dr. Watson tells Sherlock, he mentions that the earth revolves around the sun and not the other way around and Sherlock gets mad at him and he says, why would you tell me that? And he says, but how do you not know that? And he says, “Why would this matter to me?” I hope that I shall forget this so that I have more room in my brain to think about other things.

So that’s what we wanted to do for our customers is cut out all of the extra buttons and extra features and just tell them this is what’s working. In effect, we simplified it even more so that you don’t even have to look at these counts of how much time people have spent with you. We just tell you this is the content that’s working the best by X percentage and here’s what it was about this content that was better. This author, this topic, this timing. So it doesn’t matter. If a marketer looks at this they don’t need to know these charts and graphs and statistics. They just need to know what should I do next? So we took everything away except for that.

Andrew: So how did this article help you think through that issue? I love the way this article is written. How do I tell this story? Actually can you tell the story really quickly about, because you’re right. It does make me like Ryan Gosling more. I had no idea who the guy was except I’d seen him in movies. And I’d always turn to my wife and say we know him. What was he in and she might tell me. Now I remember Ryan Gosling and I actually do like him which why would I ever care about an actor?

Shane: That makes me happy. I’m a big Ryan Gosling fan now but I didn’t use to be. I used to think he was all right or whatever. He was this pretty boy actor that was in these movies I didn’t watch so one day I was bored at like an event or something and I read his Wikipedia entry and learned that his story according to Wikipedia and after reading the story I suddenly liked him.

The story is, briefly, that when he was a kid he grew up in Canada and his dad left the family when he was really young and he grew up with this mom who was stressed out and single and working all the time and so he just stayed home and watched movies. And he didn’t learn to read until he was like 12 years old or something like that. And he was diagnosed with ADHD. He was the trouble student and a troubled kid and he showed up to school with knives and he threw them at other kids because he watched Rambo when he was five years old and somehow his mom let him do that when she was at work. So it was this kid that he did not have a lot going for him other than he was a cute kid. But he didn’t know how to read and it’s so sad and crappy but he loved movies.

Andrew: And then…

Shane: And then, Mickey Mouse Club came to town and he decided to audition because he loved movies and he was cute so he got in the Mickey Mouse Club. His mom couldn’t move to Florida with him because she was too poor so he moves to Florida by himself and he gets adopted by Justin Timberlake’s mom which is true. She became his legal guardian. That’s like mind-blowing, first of all. This happened to this kid. Justin Timberlake’s mom.

And then he does the Mickey Mouse Club and he finds his passion and he learns to read and he memorizes lines and he becomes this very successful and actually terrific dramatic actor and so after learning that story of what he’d been through in his past and to where he got now, it didn’t matter that he was this pretty boy actor. I suddenly wanted to support him. I wanted to watch his movies. His movies come out and I’m like, yeah, Ryan Goslings in this and I’m going to support this guy.

Andrew: It makes me like Justin Timberlake more also because of that story, because of his mom did. So what is your point with that? Your point, actually, I don’t want to make your point for you. I know it, but

Shane: I think the point is.

Andrew: I feel like a know-it-all when I read a lot in preparation for [??].

Shane: The point is that, the more you can understand someone’s story, the more you can build, stories build relationships and they make people care.

Andrew: And that’s what you say throughout. I wish all of my guests understood that. Nobody cares about your facts. People care about your stories and through your stories they understand your facts and they believe them, right?

Shane: Right.

Andrew: And so here you say right at the top of your site, so that was your point of your article that you were trying to show people instead of telling them, show them, that stories work. How did that inform your thinking about what analytics to provide people?

Shane: Okay, so this story was the most popular story we had for some period of time.

Andrew: This article here.

Shane: Yeah, this article here. It had an incredible amount of sharing, it had an insane amount of traffic and page views. A lot of the social stuff going on. And it was the story that kept on giving. We just kept getting traffic, kept getting traffic until we installed our new analytics platform which looks at the relationship factor with us because of this story? And it’s considered [??] the story itself…

Andrew: Did you just change something in your audio?

Shane: I think I just stepped on the plug. Can you hear me now?

Andrew: Yeah, that’s more consistent.

Shane: Sorry.

Andrew: We could have done without the headset, now that I hear how it sounds. But since we started with the headset, let’s keep it consistent.

Shane: Okay. So, I’ll go back to this.

Andrew: You were getting this traffic, which sounds fantastic. Except…?

Shane: Except when we looked at our Contently Insights Analytics Platform which shows you, are you building relationships with readers that are coming as traffic, we saw that most of the traffic for this article was not turning into anything. These people were not sticking around. They weren’t reading the whole story. They weren’t coming back, ever. They were never going to be interested in Contently’s products.

What we realized is that because it was about Ryan Gosling, we got this huge social media — people who love Ryan Gosling checking it out, and then bouncing; that people didn’t actually even make it through the story. They didn’t even get to learn the story, that I find very inspiring.

Andrew: Their whole point is gone. They just wanted to hear about Justin Timberlake, and Ryan Gosling, I see. So, that’s an example of how the stats that most people think are important, like [??] kits are completely insignificant when you start to look at the bigger picture you have a better understanding, I see. And that’s why keeping it simple helped you guys?

Shane: Right. Getting distracted by the page sheets.

Andrew: This is the way your analyst looks now?

Shane: Let’s see.

Andrew: I’m just going to take as much base as I can, here.

Shane: This is a previous version of it. It’s gotten even simpler, but yeah. We even eschewed charge. We were like, “What’s the point of having these impressive looking charts. All you want to know is, people are spending three and a half minutes with you, on average. And there’s 40,000 of them a week.”

Andrew: And average finish is 81%, which is really strong.

Shane: It’s good, right?

Andrew: Yeah.

Shane: Then I think this one…like reading four to C, yeah. So here’s the Ryan Gosling story, and the average finish is not as much as the average story. But the average number of readers is much higher.

Andrew: The average finish is 26%. 26, no the average finish 73%. That’s not too bad.

Shane: That’s not too bad. Actually, I want to set the screen shot that’s real [laughs]. Yeah, so what we learned is that this story, it was under performing our other stories, and that these people went over time when you look at do these people come back? And the running total — so the average reader of this story — how do they compare down the road to the average reader that we have that’s a repeat visitor, that ends up being in the category of a person that’s likely to move our business? But this story actually was not a great story.

Andrew: If we were to keep scrolling through, we can see actually…I don’t know if this makes sense to get too deep into it, but the more I look through it, the more I can see the value of this simple approach. Now I see all the articles right below, if I move over and scroll down to them there. It’s like moving a slide on an old projector on the screen.

Shane: Yeah [laughs].

Andrew: But you can see, 99 years of content marketing, how American Express became a major American publisher. That one did well. Let me see if it’s bought the data on that. That one got time on site three minutes; average finish 87%, et cetera. All right, so that’s your point. Keep it really simple. Remove the things that you think are important, and focus on the things that really are important. And you guys did that with your data.

On to the next big point — yeah, let’s do it. Here’s the final one. Oh, go 10 times bigger rather than 10% bigger. You know, I had a guest on here, [SP] Juan Mata Teki who said, “Forget 10 times bigger. Go 10% bigger every week. And if you could do 10% bigger every week through compound interest, you’ll do a lot better.”

You’ve an opposite approach. You say, “No, look for 10 times bigger.” In fact, you guys get together in meetings and you say — what do you call the meetings — periodically they do, here’s what I see in my notes, a 10 time meeting. So, it’s as simple as that. What happens in these 10 time meetings?

Shane: Yeah, the 10X meeting is, what we’ll do is we’ll sit down and we’ll pick a topic, like a theme in our business or a slice of our business and say, “For the sake of argument and debate, what if we had to make this 10 times better?” We’ll say, “Our writer network, we have 50,000 writers. They are this engaged. What if we had to make the writer network 10 times better? What would that mean?”

Then first we talk about well, would 10 times better mean 10 times more writers, 10 times more engaged, 10 times happier, 10 times better net promoter score, what is it? So, we have that debate. And then we say, “Okay, so we want 10 times better net promoter score for our writers. Not 10%, but 10 times. What do you have to do? What do we have to do for the sake of debate, to reach that goal? Who would we have to fire? What would we have to break? What product will we have to get rid of? Who do we have to hire? How much money would we need to spend? What assumptions about our core business would we have to throw away if we were to make this happen?”

And so, what this exercise does is it gets you to use what psychologists call lateral thinking. Sort of, the MacGyver idea of using a tool for not its intended purpose, or attacking a problem sideways rather than straightforward. If you have to break something in order to make an improvement then you can start to get to what is actually important, and come up with much more creative solutions to problems.

If we had these meetings, and we said how do we make our writer network 10% better? Basically, what it’d amount to is doing more of the same thing. Would you have to say, well, this has to be 10 times better. You have to think of things that are different, that are dramatic, and that can yield some really interesting results.

The quote, actually, that I quote in book comes from the philosophy that they have at Google X, which is that 10 times better can be easier than 10% better. For a couple of reasons. One is that if you make a product that’s 10% better you better be good at marketing because it’s hard to get people to switch. It’s harder to get people to change their habits. If you make something that’s 10 times better people are going to fall over themselves to it. The product markets itself.

If you try to build something 10% better you have to work within the old paradigm. You have to use all your old machines, and your old tools, and your old technologies. If you have to make something 10 times better you have to find better platforms. You have to fire people, and you have to break things, but you end up being able to do it in many cases cheaper, and more effectively. This is how you avoid being disrupted by the people who are unencumbered by your past.

Andrew: Let’s see how you guys did it practically. You guys wanted to sell to bigger companies, bigger Fortune 500 companies, more big companies. In order to do that you needed a sales person.

Shane: Right.

Andrew: But that’s not enough.

Shane: Right. Well, we had this problem with our model where we were initially we were making 15% on transactions. You hire a journalist for 500 bucks. Contently gets 15% of that, but we were working with Coke, and Pepsi, and JP Morgan, and GE, and Google, and in order to get those kinds of companies to buy into our solution you have to have a sales person. That sales person has to have a commission. Suddenly, with the commission we’re making very, very tiny margins.

When you look at the math suddenly we need millions of stories being written in order to make a business that an investor’s possibly interested in, or that we’re possibly interested in. We realized that we’re not going to change our industry. We’re not going to change our writer’s lives if we go out of business because we can’t make a profit. We sat down, and we had this meeting where, I don’t know that we articulated it, this was before our official 10X meetings, but we said, how do we make our net profit, or our net margin, net revenue better? 10x better essentially than the 1% that we’re making, or 5%.

Andrew: Couldn’t you just increase prices, or take a bigger cut?

Shane: That’s one of the things we floated. The problem is we weren’t providing necessarily enough value. If we increased the rate to 30% journalists would just go around us. We had to keep the rates low enough that it made sense for us to be in the middle. Then we have this existential question of do we belong in the middle? Is this a business at all? The other thing too is we cared so much about the journalists we came at this from place of we want to help these creative people do what they love, and make more money.

Make a real income. If we take more money from them it’s going to squeeze the little guy, which maybe that’s an assumption that we would rethink, but we felt deep down that we didn’t want to. That was the one thing that was holy for us. What we realized in the course of this exercise of we have to figure out a way to make our net profit greater is we were selling to these really big companies. We had to build some software features to help them project manage these journalists.

To get them paid. To them through procurement. To get assignments, story ideas, and all of that. We built these tools to make the process easier. My two co-founders floated the idea of well, software business make 100% margin. What if we sold our tools for subscription? I actually said no. I said softwares supposed to be free. There’s no way. We can’t do that. Let’s think of another idea.

Andrew: Because software in your situation is just supposed to facilitate the interaction between the two people that you get paid to connect.

Shane: Exactly. The rule for us was that the money came from the transaction between the journalists. It was coming from the content. What my co-founders prevailed on me that we should at least test it. We said let’s do what we always do. Let’s do a one month test. We have some new features coming out. We’ll tell people that those features cost 1300 dollars a month. In one month we’ll see do people buy it, and if that will throw away this pricing. In the first month we sold a dozen of these to new clients. The light bulb went off. We said, wow.

People are willing to pay, and in fact they expect to pay for project management software for a subscription, or a license of some sort in addition to the content that they’re doing. And so that epiphany led us to saying ‘Well, there’s… people are willing to pay 1300 dollars a month. What’s the 10000 dollar a month plan? What’s the 20000 dollars a month plan? And so we started this escalating pricing, and we actually ended up building out a kind of diagram that I think you might have. Of…

Shane: Let’s bring it up.

Andrew: …how can we capture the most value from our customers? How do we price, you know, what’s the…

Shane: Yeah.

Andrew: …what’s the $20,000 plan? So what we did was we mapped out, you can see on this chart, there’s one axis is willingness to pay. How much money you have in your pocket, that you would be willing to part with. And number of companies in that boat. Now there’s this curve that’s probably somewhat regular like this. And then we said let’s make 3 pricing fines, let’s draw boxes underneath this curve.

So we have three tiers of pricing we can do, and then we looked at each of these boxes and said these companies that fit into this racket of willingness to pay; what are their unique needs that the companies in the next two categories don’t have. And what are the things that are common to all of them? And so we went through this exercise and basically found that the companies that are the most willing to pay the most money, have needs like compliance and lawyers need to be looped in on stuff and they want special reports that the smaller guys don’t need. And some of those features actually counter-intuitively are easier to build. They don’t cost us as much technologically. But they’re in common with this willingness to pay factor.

And so this…basically we built this counter-intuitive to us, based on our knowledge of technology pricing paradigm that dramatically accelerated our business. Suddenly we had people… I mean I think our pricing now after many experiments, something around 3500 dollars a month for the lowest, sort of basic set of features, gives you access to our journalists. And then, you know, 6000 a month for a little bit more. And 10-50000 a month for kind of the enterprise you want, the kitchen sink and all of the compliance stuff. And this took our company to more than 10x. Our profit suddenly, our net profit or our net revenue, you know was suddenly dramatically higher than before.

And this changed the game for our company. And we wouldn’t have had this huge growth that we’ve experienced now and more investment and employees and happy customers. And be able to, you know, not coincidentally, help more journalists make more money, if we hadn’t decided that it was okay to go from being, you know, the…[??]…first idea to a software company.

Andrew: So the ten percent more thinking would have said, “Well we’re getting 15% commission, maybe we can take it up to this 16 and a half, or 20%.

Shane: [whispering] Exactly.

Andrew: The 10x is, what else can we do? And that’s what led you to software. With software you get to keep a 100% of the revenue versus 15% of the revenue that you do with the magic. It seems like now the fifteen percent commission of the commission that you get on connecting writers and publishers is small compared to the revenue that you get in from this new software.

Shane: Oh yeah. Yeah, in fact, we have you know account services and yeah we hardly make any profit after… at the end of the day that fifteen percent you know essentially helps us to fulfill this hunt and really the only money we’re making from our profit sampling is coming from the software, which is totally different than we expected.

Andrew: Well, the book is Shortcuts, there it is up on the screen, How Hackers, Innovators, and Icons accelerate success. What I like about the book is it’s so well written it just keeps hooking you in and it’s incredibly well researched. And there’s no ulterior motive. A lot of times when entrepreneurs write books, let’s be honest, they write the book that will get them the clients that they need.

And in this case it’s, here’s what works. And not what works for me today, what works for many people that you respect over time. Everyone from Jimmy Fallon, to President Lincoln, and entrepreneurs that we know. And it’s just really well told and the other thing that I like about it, is a lot of time when people say here’s shortcuts to success, they haven’t hit success yet. They’re basically writing a book report about people who they’re studying and it’s great for them, but I don’t want to read your book report. I want to know from someone who’s done it.

What does it really take? And that’s what this book has. I don’t want to keep railing on other people I want to say this is a really well written book and I think people who get it are going to love it. In fact, I think people that even get it as a sample from Amazon Kindle are going to be very happy with it…and then they’re going to want…

Shane: Thank you.

Andrew: to finish the rest of the book.

Shane: It’s very flattering of you to say, for me it’s been an exercise in. I mean, it’s been an intellectual adventure I’d call it. In helping me to accelerate my business using these things, but telling stories that hopefully will inspire a lot of people, so I’m…

Andrew: Do you wind up doing any interviews for this book?

Shane: Yeah. Oh yeah…

Andrew: Right, I remember I was talking about it and you said I’m interested in doing interviews. And you were talking to me about what it takes or something like that.

Shane: Well, I ended up interviewing probably over a 100 interviews. I spent my weekends, so I’d work at [??] during the week and nights and the mornings, and then every weekend I’d to LA or London or to Chicago to interview people and get their stories.

And so the book is a mixture of narrative and sort of academic research. And a lot of it is …

Andrew: Why did you work on this book all that time when you’re running a successful business, one that’s fast growing and needs your attention? Why are sitting and writing books on the weekend?

Shane: Yeah, a good question. Part of it is what I love. It’s why I got into the content business in the first place. But the other part is that I had been before content like writing about fast growing companies, people who did incredible things very quickly. And I wanted to do the same for our business.

I didn’t want to be a run of the mill business, and so the best way to me with the only skills that I have as an entrepreneur comes from my curiosity as a journalist, my reporting skills. I figured if I can find these people and then maybe find out their secrets, maybe we can apply them to Contently.

So at the same time I was writing the book, you were able to use those to help accelerate our business. So it kind of fed together. And at the end of the day the book’s not about Contently at all. I think it says Contently once in the introduction.

Andrew: I know. I’d like it to be more about Contently. That’s why we did a pre-interview with you even though you wrote a book. All right. Show us how you used it because you really were trying to come at it from a very academic point of view, well researched. I want to hear more about your story that’s why we did that here.

Shane: Well, thank you. I’m glad that we could get this story here too because it’s a good supplement. But, yeah, the book itself was … at the end of the day even though it’s not about Contently it’s great content marketing. We’re in the content marketing business. People who read this book learn about content marketing. It helps me build my brand as an entrepreneur which then helps me get the guest stories and add [??] and get attention for speaking gigs that will help our business.

But at the end of the day too for me this … I believe in providing value for other people before you ask for value, and if I can contribute to other people doing great things for their careers or for their business or work or society, that’s going to come back. That’s why I’m building a business that helps journalists make money versus a business that gets rid of jobs, I guess, for robotics [??]

I care about that at the end of the day, like I’ll be fine. I’m an entrepreneur. I can make money, you know. But it’s for me what makes me happiest is seeing can I pay forward what people have done for me and teach me how to do what I do.

Andrew: Well, thanks so much for coming here and teaching the Mixergy community. As I say, always if you get any value out of this or any other interview, any other content online find a way to thank the person who you learned from.

I found it’s a great way to get to know someone, starting off with thank you as opposed to starting off with, “Hey, you know what? Would you be my mentor?”

So Shane, thank you so much for doing this session with me. And thank you all for being a part of it.

Shane: Andrew, it’s my pleasure. Thank you.

Andrew: Thank you.


Master Class:
How to get traction
(A Startup Guide to Getting Customers)
Taught by Gabriel Weinberg of DuckDuckGo

Master Class: Get Traction

Report Bugs


Andrew: This session is about how to get traction for your start-up. It’s led by Gabriel Weinberg. He is the founder of DuckDuckGo, the search engine that doesn’t track you. The whole conversation here today is based on his new book, Traction: A Startup Guide to Getting Customers. These are the big ideas we’ll be talking about. I’ll explain them in a moment. My name is Andrew Warner. I’m the founder of Mixergy. I’ll help facilitate. Gabriel, it’s good to have you back on here.Gabriel: It’s great to be here people. So years later, reference our first Mixergy interview.Andrew: Oh, I love that and I’m going to reference that it in a moment in a really helpful way. Wait until you see a blast from the past. But first, I want people to understand why we’re doing this. In fact, even though your search engine now is doing extremely well, even though it seems like startups come easy to you because this is your second big success, you’ve had a few failures. In fact, you’ve said you’ve had 23 projects over the last 20 years. There were many failures, including the one with this Groupomatic. What is Groupomatic and why do you think that and a few of your other startups didn’t do so well?Gabriel: First of all, you’re absolutely right, a lot of failures in there. And so one, I understand the failure. And two, it shouldn’t be a bad thing necessarily to fail, but they each have their own reasons. So Groupomatic, if you’re familiar with, it was kind of a competitor to I still think one could have a competitor to, but I made a bunch of mistakes in pursuing this.One is the mistake we really talk about in the book which is I didn’t really focus on getting traction while I was building the product, so I did do some lead startupy [SP] stuff and had some bitter customers and asked what their problem was. And I made a product that people were somewhat interested in, but there was clearly some need for it because, for example, MeetUp charges $19 to start a meetup and I was doing it for free. So that’s obviously there is some need there, but I didn’t pursue exactly what market to focus on, what the marketing message should be, what marketing channel was really going to get the growth curve, so I launched it to basically no fanfare, had no idea what to do next, and that’s really the common story unfortunately.People developed the product not thinking about traction or you think about it as an afterthought and then their runway is tiny, and then they basically run out of money on that little, tiny runway, and then they have to kill their product. And the sad part about it is the products are actually often good.

Andrew: Yeah.

Gabriel: They actually pursue a need.

Andrew: Gabriel, am I right to say that often when the product is exceptionally good it causes problems for traction because it means that the developer, that the founder often spent so much time creating a great product and didn’t do what you’re about to talk to us about which is simultaneously talk about, and think about, and plan traction.

Gabriel: Absolutely! So we advocate is to spend half your time on traction and in theory that sounds easy, and simple, and straightforward because, yeah, you need traction to succeed, so wouldn’t you spend half your time on it? But in reality you started this company and or project because you had this passion for a product and you want to make that come to life and so your draw to spend all your time on product is so hard. Additionally on the traction side it’s like, whoa, that involves a lot of stuff, out of my comfort zone, it may cost some money probably, it’s unknown to me and so there are a lot of reasons why even if you know that you want to do it, you’re pushed to spend less time on it.

Andrew: I talked a moment ago about how you run a successful search engine. This is DuckDuckGo, the search engine that doesn’t track you. By using the ideas that we’re going to be talking about here today, here is what you were able to do with your traffic. Right?

Gabriel: Yes.

Andrew: Where are you guys right now?

Gabriel: We are at about 150 million searches a month and we started even before this, the grift that we were at before is in that little zero, but this starts in 2010. We actually launched in 2008. And so we started at around 10,000 searches a month and now we’re at 150 million. But one thing that growth curve really illustrates is what happens to a lot of startups. A lot of startups aren’t like the steady increase or an exponential.

Andrew: Yeah, let me show you [??] doing that, yeah.

Gabriel: It’s hard to tell because it’s not a long burden of graph, but you could see in that graph, you could see the step functions how we are basically going along a bit, increasing a little bit, and then it would jump up and jump up and then jump up again. That’s three or four jump ups in here. And what that is is really a marketing channel got unlocked for us. We discovered a whole new way to grow. And when you’re going through one of those exponential curves like those explosions, generally there’s one channel that is dominating that.

And unfortunately if you’re in a search engine market space where there’s so many people, everyone needs a search engine. You have to get so big to make a dent. We ran out of volume on a lot of those channels. That happens to a lot of people. You reach diminishing returns on your marketing campaign. You actually have to start over. So we’ve gone through six different main channels. We started with SEO and then moved to social ads, mainly Reddit. Then we did contact marketing on my blog and then microsites [sp]. Then we did print PR and then TV PR. And now we’re on to business development. Where we’re a search option on the latest iPhones.

Andrew: Yeah.

Gabriel: And each one of those kind of moved the needle at a different stage for us but also on the flip side they stopped moving after a while. And so we…

Andrew: And we’re going to get into that when we talk about it…

Gabriel: Feel free to drill down on all of it.

Andrew: The key thing though that I want to emphasis here is that to get to this traffic that we’re looking at here, you worked on traction as you worked on the product and the other point that I want to make is that I don’t think we were clear enough is you tried lots of different tactics, lots of different approaches to see what hit. And when one worked for you that’s when you focused on it. Am I right? And then eventually we’ll see it loses its effectiveness. And we’ll talk about what to do about that. Do I have that right?

Gabriel: That is absolutely right. In those periods of more slow growth we were testing things and trying to find that next kind of growth channel that would unlock it. And unfortunately, I think this is a reality, sometimes it takes a long time. And part of that is product focus. You’re doing [??] product. But it was definitely not an overnight success.

Andrew: And we’re going to talk about how you did that. I wanted to just show that you’re a guy who had felt the pain of not getting traction. And then once you figured it out, I invited you here to talk about it. I don’t want people who are theorists. I want people who actually have done it to talk and teach others how to do it. Here is the list of concepts that we pulled right out of your book, right out of “Traction” that I thought would be helpful for us to talk about here today. The first of them is to use the bulls-eye framework to find a profitable channel. Before we even explain what it is, I thought maybe we could talk about Noah Kagan, one of the entrepreneurs that you interviewed for your book. How did he see the bulls-eye framework when he worked at, the online finance tool?

Gabriel: Right, so there are two kind of underlying premises that you kind of have to buy into to believe this framework. The first is the one we just talked about. Which is that when you’re really growing usually one channel dominates. And for Noah at Mint when he was first starting out that was targeting blogs.

Andrew: Okay.

Gabriel: So he got, you know, Mint is a finance tool and ultimately he really targeted blogs that were related to finance to get his traction. So that’s one thing. The second premise is that there are a lot of different ways to get traction and we identify 19. And you don’t know ahead of time which is the right channel and even more so you’re biased against some because just based on what you know. And people usually just start with what they know. And that intuitively makes sense, but it’s not really the right thing to do because what you know may just be the wrong channel for your business at that time.

Andrew: Or I can see, frankly, you say that content marketing, going to blogs, worked for Noah. I can see myself listening to this and saying, “Great. I’m going to skip ahead and I’m going to go talk to blogs. Tell me what Noah did. Great. I’ll go and do that.” And you’re saying that’s not the way to do it because it may not work for me. Instead Noah worked through a process to get there and the process started with the, actually with what?

Gabriel: Yeah, exactly. He made a spreadsheet. And he really brainstormed all of the different channels that he could use. He really started with a goal. I know that was a little farther down on your list, but I’m going to jump it a little bit.

Andrew: Do it.

Gabriel: We can come back to it. Which is you need a traction goal to measure against. And his goal was a hundred thousand customers within the first year.

Andrew: Okay.

Gabriel: That was meaningful for their business for particular reasons for them. You know? They thought that would be the traction they would need to get to the next level. And that’s a great goal is to have one that is an inflection point of your company. However, if his goal was a thousand users, the strategies he might employ to do that are going to be very different than the ones that are a hundred thousand.

Andrew: Okay.

Gabriel: Some of the channels wouldn’t work. And so you got to know what your goal is so you can measure what you’re doing against that goal. So he started with that goal. Then he said I’m going to list all the different channels I can do and I’m going to try to put some rough numbers to them. My best ideas for that channel. How many people do I think will convert? How much will it cost to convert them and are these direct customers that I want? And from that list he narrowed it down to a few different channels that he would try. And then he ran tests on them. He said, okay, I am going to try one or two blogs for the blogs. That’s what his test was and see how that converts. After running the tests, the blogs really seem like they could give me the volume I need. The customers are working. The cost is not high and so I am going to choose to focus on that channel and that’s what he did and it worked.

Andrew: Is this the process? Brainstorm, rank, prioritize, test and focus?

Gabriel: That is exactly the process I just laid out and that is the bull’s-eye frame work. It is essentially the metaphor for bull’s-eye is that you think of yourself shooting archery. An arrow towards the target and the bull’s-eye is that exact marketing channel at the center that will help you take off and you want to hit that bull’s-eye. Unfortunately the regular approach is basically shooting blindfolded. That’s the one where you do what you know or do what you heard people did and you take this random walk.

Andrew: Did you ever do that? Did you ever just say others had tried this one approach? I’m going to do this blindly or where you always as focused as we’re suggesting to the audience.

Gabriel: Yes. I made this exact common mistake as everyone else. So I mentioned that the first channel for DuckDuckGo was SEO so the only reason for that was my last business grew a lot through SEO so I know SEO and I’m going to get traction through SEO. I got a tiny bit of transaction through SEO and the way we did that I did a lot of talking on my last interview because this was many years ago. It was try to get people who were on Google to get to DuckDuckGo when they were searching for the term new search engine and they would type in new search engine and they would find DuckDuckGo and they would do it. That actually was good. Those were good customers but the volume was tiny so my traction goal, wanting to get to 100 million searches a month it was never going to move them. So all my focus on that was just not the right channel.

Andrew: I remember actually in the early days when you and I connected, in one of the emails you sent me this little widget that I could put up on Mixergy that would allow people to see all the social networks that I was on and link to them and then underneath it is said new search engine hyperlinked over to DuckDuckGo and it wasn’t until I got your book that I realized what you were doing back then. I thought you were just goofing around with widgets. You were such a fan of hacker news where we connected that you wanted to connect people back to hacker news, something like that, and now I see. All right.

Gabriel: That’s exactly right. That’s what you do when you focus on a channel. You find these underutilized tactics that no one else is doing. At the time when we were doing this widget thing it worked beautifully. We ranked high for new search engines. It was just the wrong channel to feel my energy in there, right because it just didn’t yield that many searches.

Andrew: Okay. So, this is the bull’s-eye framework. Brainstorm, rank, prioritize, test and focus. We’ll see a little bit more about how Noah did it in a moment but this is the site that he basically sent people to from those blogs. He would go to bloggers and he would say, would you be interested in putting a “I want Mint” widget on your site and that worked for him. He sponsored them by paying for them. He got guest posts there and so on but it all started by brainstorming a list of places that he could possibly promote Mint. Started ranking them. Prioritized them. He started testing them and once he found the one that worked, that’s when he focused. That’s when he did the newsletter sponsorship. The Suze Orman sponsorship, etc.

Gabriel: You may be getting to this in a second, but can I make a point on that?

Andrew: Yes.

Gabriel: So those things that you just listed he did were very creative, right? He didn’t go through normal . . . If you are going to target blogs you don’t normally just send cold emails and say I’ll give you $500 to put up this badge, right? He discovered some of these tactics only by testing within that channel and really focusing on it creatively.

Andrew: I see.

Gabriel: The other mistake that people make is that they’re like, okay, I ran a few tests. Some of the Google ads are kind of working. Some Facebook ads are working. This blog thing kind of works. I’m going to try to do a little bit of all of it but if you do that you are not doing the focusing right. You won’t get to those creative ideas. But he got there.

Andrew: Okay. Here is the next big point we are going to talk about, which is divide you time between building and finding traction. We talked about that a moment ago. But I want to put little bit more flesh on that idea may be by talking about Rick from Unbalanced. The day, I think the first hire he had was a blogger, Right.

Gabriel: That is correct. Before he did any product work, he was, he really took this, mean not hard thing the hardest thing he had ever for a book. He took this idea in to the heart that he would be spending 50% of their time on traction. And you know he is a perfect example. They were blogging and that ended being the biggest channels. So, they had foresight there. But, Let me take you through the metaphor why this works. It’s the leaky bucket ones. Everyone is familiar with leaky buckets got holes in. And in this case, you are pouring in customers. And at the beginning you are falling out because you know your product always has holes in it. You have to plug them.

Traditionally people are like, Okay that’s what you know lean start up is supposed to do, Right. I had some Beta customers. I go and talk to them. I plug some of them.

That gets some of them. But not all of it. That’s where lies the problem. But those Beta customers are too close to you. Because you coach them, you now, you know them. They are not real cold market feedback. So, what he did is he had this blog and he was getting a steady stream of people in to his idea initially and then to his product. And they were cold. He has a marketing product. And his were just marketers without he cannot survive. And so he could test what the real customers would do with his product.

And so that he could figure out what the messaging really should be what the niche initial focus on should be. And more importantly, what others additional holes that he really needed to plug to get this thing to take off. That one he did take off. When he did launch finally, he had, he was kind of amazing. He had a You know, a unique list of Emails and he knew exactly how to market it and then it could kick off immediately.

Andrew: Here is the first blog post on his site. Ali, his co-founder wrote. Hello everyone, welcome to Unbalanced Etc. And the he says, we will be posting a lot of great content in the lead up to launch time, which is expected to be final quarter of 2009. He was doing this in mid-2009. What do you say to someone who is listening to this, who says, Maybe they should focus first on creating a product first before blogging. Building a blog takes time. Thinking about what to write takes time. Figuring out your marketing takes time. All that time should be going in towards building your product. And so maybe you get your product out a little bit faster and put it in people’s hands

Gabriel: So this is counter intuitive. But it is true. If you what normally happens is people make that arguments it make sense, although it’s wrong. And people launch and they can’t get traction. And they realize they can’t get traction because they needed to do something slightly different with their product. And then they end up in this multiple product development cycles. What giving traction in parallel does for you is it not only helps you to take off the new one you launched. But you are actually launching with the right product because you are plugging all those holes we are talking about. And so yes you spend less time on product, but at the same point you get actually a better product out of it. But it’s kind of amazing. It’s like kids having a cake and eat it too, kind of thing.

Andrew: Here is one of the things that I say from the early days of his site. This is actually still up on the site, right now. But it was created and published before he officially launched the product. It’s a lead magnet. 101 landing page optimization tips. In order to get it, you have to put in your Email address and then you get it. And this is one of the ways he was getting beta customers. And that’s what you are suggesting. And that by doing that he got strangers who were interested in landing page optimization and therefore interested in market he was going after. To give him their Email address and then he had a list of potential customers to talk to and get feedback from its address. Right

Gabriel: Yeah, another kind of real point here is that where kind of getting real is that we are not talking about is that a lot of people need for is money at some point to fund their idea right. And to do that in nowadays you can’t raise money on an optimum any more that easily. You need traction to do that. And so the other kind of real motivating factor even this earlier and be more confident when you launch you are launched to a good traction growth curve is that it’s going to you know it’s an option to be able to raise money easier, whereas if you launch and you struggle and you don’t ever have a growth curve, it is really hard to raise money.

Andrew: I see. That is really hard actually. And frankly I also feel that learning how to get customers take time. Just like figuring out how to create a great product takes time. If you wait to do it, you’re missing out on all that experience, all that failure, all that learning.

Gabriel: Yeah, completely agree. Not only that, it is a skill that you’re going to need to be successful. And arguably, this gets a little meta, but you started this company or this service because you had domain expertise in this area, a passion. You did not have domain expertise or passion in this getting traction area. So you’re actually behind in that area relative to product. If you could consider the life cycle of your company, you need to spend that time initially to kind of catch up or you’re going to be behind forever.

Andrew: Can I just take a detour away from the big board for a moment, from the big ideas we’re going to talk about. I want to point out two things that I’m noticing just by looking at the camera. First of all, usually people who I interview the more successful they get, the heavier they get because there’s so much stress, there’s so little time. Meanwhile I’m looking at you, you’re pretty freaking fit. I don’t think people can even see it on camera because I don’t have the camera all the way panned down. Are you working out while you’re doing this? How are you staying stress free?

Gabriel: I appreciate that. I agree with you. It is quite stressful. I think exercise. I’m not going to be too preachy about any of this, but…,

Andrew: What do you do? What kind of exercise are you doing?

Gabriel: To me low stress involves like the exercise benefits of reducing stress are meaningful to me. So I try to, not a ton of stuff actually, but I try to walk around as much as possible. You know, that kind of stuff. Right before this interview I just took a 30 minute walk. Which may be why I look a little sweaty or something.

Andrew: No. You’re looking energetic. I like it. And here’s the second thing I’m noticing and I’ll put the camera on you for that. Are you in your house right now?

Gabriel: I am in the DuckDuckGo headquarter office. In my office.

Andrew: Got you. Because I think, I know actually that in the past interviews that you’ve done on Mixergy you were working from your house. Weren’t you just also the primary care taker at home?

Gabriel: Yes. When I started DuckDuckGo I did it myself for the first three and a half years. I started 2007 and in 2009 we had our first kid, Eli who’s now five. But the first two years I was a stay at home dad and also doing DuckDuckGo.

Andrew: Yeah, I couldn’t believe it.

Gabriel: And then we kind of switched those roles. Our kids are in school full time now so there’s more time. But yeah, it was awesome. At the end of 2011 when we finally took some outside money we rented this office. We’re mainly a virtual company so 80 percent of our staff is worldwide. But we do have this office here and I do like having an office.

Andrew: I do too. I like having a little bit of space. All right, I got to move on to the big board here quickly because we have a lot to cover. The next big idea I want to cover is the willingness to do things that do not scale. Again, going back now to Noah Kagan who we’ve talked about before. He used to email people individually as you said and say, “Can I send you 500 bucks.” That’s not an automated system. That’s not part of some kind of infusion soft drip campaign. It was him doing it. What’s the advantage of doing it manually like that? As opposed to saying, “You know, if offering people 500 bucks is the way to do it, let’s just email a bunch of people or let’s add it to our drip campaign.” Why…

Gabriel: There’s two advantages. One is especially at the early, earliest stage like him right. Your traction goal is usually small. You need to get a little bit of traction to get to the next level. Whatever that level is for you. Because of that a lot of unscaleable [sp] things actually move the needle for that goal. Going and speaking at one conference and going even door to door in some cases with some products. These things won’t move the needle later on in your business life. But that’s okay because right now they are. And if you know what your goal is then you should be willing to do it if the numbers work out. That’s one of the things. The second thing is one of the advantages startups have and founders have is that they’re authentic people. And they’re company has this authenticity to it. And people love talking to founders. So two of the needle at these small ways if you’re actually the founder reaching out or someone who’s really authentic like Noah was, that in and of itself is kind of surprising to people on the other end and you’ll have much higher conversion rates.

Andrew: He used to get people to put this up on their site. Little badges. They’re still available on right now. I know, I checked. That’s where I got the screen shot. But he used to get them to just put badges on their site that say, “I want Mint.” Or, “I support… ” Actually that is what it said. It said, “I want Mint.” This is before Mint officially launched. And if they did, I think he would move them up and give them earlier access. And that’s the kind of thing that he used to do that got a ten thousand pre-registrations before he even launched.

Gabriel: This makes another good point that it’s kind of an underlying premise to his approach and in general getting traction is that we’re talking about building the product while you’re building traction. But the premise in there is that you’re working on a product and working toward a product that people really want. And if that wasn’t the case with Mint then no one would have put these badges up no matter how persuasive he was. But the underlying idea for the product was really compelling and people really did want it. And so he needed to marry that good product idea with a good traction idea. But you need both.

Andrew: I found to that by doing that, by reaching out to people and promoting the product even before it’s launched, you get feedback about what people get excited about with the product. What features they are bothered by.

Gabriel: That’s exactly the kind of thing you get from we were talking earlier about, you might change the product because of that. Right?

Andrew: Yeah.

Gabriel: And I don’t know the particular case with them, what they did with Mint. But he may have been like, “Okay, I reached out to a hundred of these people. People really want the idea of checks and having the checks part of this work.”

Andrew: Right.

Gabriel: And then he’d be like, “You know, we’ve got to prioritize that in our road map. That might have been two years down the road. Let’s do that now because that’s really going to get us the take-off immediately.”

Andrew: I just realized that we’ve used Noah Kagan now as an example twice in the book. And apparently I use Noah as an example several times in Mixergy. But if you look in the book, there’s tons of examples, tons of companies. You’ve talked to Rand Fishkin. You’ve talked with Jimmy Wales. Who are some of the people who the book is based on?

Gabriel: We talked to literally dozens of successful founders and then experts in each of these 19 channels. And so basically once we uncovered all the 19, we decided we need to go talk to several founders or find traction stories for several founders in each of the 19 verticals. And exactly how they did it and give basic tactics or strategies or how to get into them. So for each one of those channels we talked to people. So for like community building we ended up talking to Alexis from Reddit and Jeff Atwood from Stock Exchange and now Discourse. And for speaking engagements we talked to Dan Martell of Clarity who has grown traction through that channel. So literally every channel we were like, “Okay, what start up is really an emblem of this channel doing so well at it? Let’s go talk to them.”

Andrew: Here is chapter one of the book. That’s where you have a list of all 19 traction channels. Everything from viral marketing, public relations, community building, speaking engagements, offline events, affiliate programs, sales, existing platforms, trade shows. These are the ones that you broke down and then there’s a chapter on each one of them. And then within that chapter examples from real entrepreneurs like the ones that we’ve mentioned. That’s the way that you structure the book.

Gabriel: Yes. And the first five chapters are this kind of intro traction thinking and how to think about this bulls-eye framework we’ve been talking about. And then some questions everyone asks. Like when should I pivot? How much traction do I need for investors? That kind of stuff.

Andrew: All right. Back to the big board. The next thing is something that you brought up earlier. Which is you need to create your traction goal. And here is as I said earlier is that you were on Mixergy and I wanted to bring up one of the things you said.

Gabriel: I wonder what I said.

Andrew: Look at this. In there it’s hard to see, but I wanted to get the full interview in there. Here is an interview that you did on Mixergy that you did on December 5th, 2011, is when I published it. And you said, “At some time, we’re at this ten million now, and I’m trying to figure out ways to get to a hundred million. And that’s going to take things that we haven’t done before. And I’m starting to think about what they are, but I’m getting beyond our questions so feel free to jump in.” I like that you got beyond the question. What you were saying is this is the goal that we hit right now and you are aiming for, back in 2011, for a hundred million what.

Gabriel: A hundred million searches a month. The reason for that goal was we felt that would be a level where we would be at break even in a company and be a much more of a sustainable trajectory forever. And that did turn out to be true. But it was also true when I talked to you we had just reached that plateau where we didn’t know what was going to, we had to start this whole process over. We didn’t know what was really going to move that needle.

Andrew: What? And by the way, the reason that you knew you could be self-sustaining is you were running ads in the search results a little bit more. Not a little bit, much clearer than Google ads. So, people could see what they were, and you were monetizing your business just like that, right?

Gabriel: Yeah, right, so, you know, we don’t track you. And it just turns out you don’t have to track people to make money on a web search, because you do it based on the keyword. You know, you type in car, and get a car ad. We don’t have to know anything about you. And so, we could have a, that business is well-established. And so we can figure out what the numbers were on it. And could easily run them and say, okay, at 100,000,000, you know, we could have something here.

Andrew: I see. So, what’s the importance of doing that? Why not say, you know what? We just have to keep on growing. The number 100 is important, but as long as we just keep growing and figuring things out, maybe we can find a way to be self-sustaining at 50,000. Let’s be more flexible. Maybe we can find a way to be more profitable actually, at 25,000,000. What’s the significance of finding a specific number?

Gabriel: So, I think you could, that is a good conversation to have. And maybe out of that, you decide your goal is 25,000,000. But, here’s the reason why you want to go on the significance, is because if you don’t have a goal, and you’re kind of successful. We had 10,000,000 that served to set the months. You know, now we’re at 150,000,000. But, at that time, I thought we were successful, too. Whenever you start reaching the point of success, and you probably hear us message you, people are coming to you all the time with opportunities.

Andrew: Mm-hmm.

Gabriel: Right? And you can think of a way to use almost any of these channels, somewhat effectively. And so, you start to look at that, and you’re saying, okay. If I spend a month on this, maybe I can increase it by 1,000,000 searches. And I spend a month on this, I can increase it 1,000,000 searches. But then, if you have nothing to measure it against, there’s really a draw to go do that. But, a lot of those things are distracting, because there might have been something else you could spend time on to get 50,000,000 more searches.

Andrew: Mm-hmm.

Gabriel: And, if you’re not thinking about it at that level, then you have too much of a draw to do these smaller things that don’t ultimately move the needle. But, the only way you can tell something moves the needle is to know what the goal is.

Andrew: I see. You know what? I think I maybe should rephrase that question. Because, what you said makes perfect sense, but what I’m trying to understand is how to reconcile the idea of being lean and flexible with what your product becomes, and the need to have a goal, so that you’re guided in a direction and know how to pick between multiple opportunities. What we’re told is, listen to your customers and hear what they want. If, over and over, your customers would have told you, I don’t care about search. I do care much more about, I don’t know, email. Or these forms that you create that you use to organize yourself, you would do that. So, how do you reconcile the need to be so flexible that you listen to your customers to the point of shifting your product completely, and your internal need to have a specific number to guide you, and, along with that, a specific product to create to hit that number?

Gabriel: No, I think that’s a good, insightful question. I mean, I think the establishment of the goal is the end result of that deeper conversation. Right?

Andrew: Mm-hmm.

Gabriel: So, you really shouldn’t just set a goal in a vacuum. You’re either, you’re doing it after kicking all those signals from your customers about email or whatever, right?

Andrew: Mm-hm.

Gabriel: And, you know, that’s what we did, when we did that. And we said, we had a time when, you know, we thought about doing email, and things like that. You know, are we a privacy company? Are we a search company? And, we took in all those signals, and decided, you know, we’re a search company. We think that’s where our focus should be. And, given all that time, and thought, that went into knowing that we’re a search company. Now, what should our goal be as a search company? So, I do think there is attention there. I think you’re on to something. But, I think after all of that, you still need to end that conversation with a goal.

Andrew: Okay. Speaking of, I mentioned that Gabriel has a forum. And, you’ve had a forum to help guide you, and help you stay in touch with your community for DuckDuckGo. You did the same thing for this book, of course we’ll link it up, so that anyone who wants to have a further conversation about this, or be engaged in a community of people who are thinking and working towards getting traction. We’ll link it up, so that people can go to it, but it’s just I’ve got it here on my second monitor. All right, let’s go on to the next big idea, which is, we want to design our sales. [Noise] Whoa. Whoa, hang on a second.

Gabriel: [Laughs] What is that?

Andrew: I think we’re having a fire alarm here.

Gabriel: Oh, really, is that what it is?

Andrew: I’ll edit this out.

Man: May I have your attention, please?

Andrew: Shoot.

Man: May I have your attention, please?

Andrew: I mean shit.

Gabriel: [laughs]

Man: The situation in the building is all clear.

Andrew: Oh.

Man: Please return to your floor.

Gabriel: You didn’t even know you had a problem.

Man: May I have your attention, please?

Andrew: I guess not.

Man: May I have your attention, please?

Andrew: [laughs]

Man: The situation in the building is all clear.

Andrew: Maybe I won’t edit this out.

Gabriel: [laughs]

Andrew: People should see that the situation in the building is all clear. Stop panicking people. Usually when a fire alarm goes off I will hit the mute on my mike and continue and then come in between fire alarms. Hey, we’re all clear. Thank you. All right. You know what? I think I am leaving that in there. Here we go. The next big idea for us to talk about is design your sales funnel from the standpoint of the customer. JBoss is a company that did that. Here, I actually have their sales funnel right there. Right? This is the process that they go through to take strangers and turn them into customers. How do they do this? What is their funnel if you remember?

Gabriel: Absolutely. They were a primary example in our sales chapter. This concept of the funnel is really applicable to all channels if you will because ultimately what you are doing is taking a customer in from some marketing channel, right? You want them to come out or some percentage to come out the other side and pay you for your services, right?

Andrew: Yes.

Gabriel: And that process of coming in and going through is your funnel. What they’re talking about is designed from a customer. The opposite of that is designing it from the company prospective. So you’re thinking I have this product. I need to put up a pricing page and I’m coming up with this price point and they need to pay before they try it because I need money right now or whatever. That’s from your perspective, right? But the customer perspective is they land on my website, who is the primary customer landing there? What are they thinking? What do they really need? In JBoss’ case, they decided and they were going to do this ahead of time, they had open source software so their customer was mainly browsing on their site, just trying to implement the product and a lot of them wanted documentation.

So what they decided to do was tie getting the documentation to getting an email address and once they got the email address then they would run that through a [??] campaign and see if they needed more help and if they needed more help, like support and stuff, then they would go through their inside sales team. That process was really [??] to the customer because they really didn’t bother them until they really needed something and then they could really get out of the process when they needed to be into the sales [??] For other businesses it may be totally different but the general point is that you need to think from a customer perspective and the easiest way to do that is to go try to talk to customers the same way like it’s a start-up.

Andrew: And the idea is to think, all right, a stranger is coming over to my site or as JBoss on their funnel calls it over on the left, a suspect, comes over the sight and you are thinking, what is that person looking for? What does that person need? How do we take them to the next thing that they need and the next step after that and only when it makes sense for us to come in with a sale, do we make that offer to them. I actually thought it was pretty interesting the way that JBoss did it. I’m looking here at my notes and they would keep interacting with people and I think I’ve got this . . . there it is. They would wait for people to do things to have a certain level of interaction like check in to a couple of webinars for example and only when they did a few of those things did they say, now let’s see if they’re interested in talking to us. Software today allows us to do it. AWeber doesn’t do it for email as far as I know but Infusionsoft and many of the other email software packages do that.

Gabriel: Yes. Absolutely. Every business is going to be different but they had a great [??] model, right? So they had tons of people using their software but a lot of them weren’t interested in paying for it. They weren’t a business that had a need to pay for it and you know if they went after everybody they would just drown and not make any money and so they figured out who to go after and that is basically what they are doing. They are identifying the real needs in their business so they are not wasting time with their sales organization. Often people will split marketing and sales on that basis. The marketing team job is to collect these data points and deliver leads to the sales team.

Andrew: What about your site? Can every site have a sales funnel? I am looking at yours and it’s just a search bar. Is there a funnel that you can create for that to create more connection with your customer?

Gabriel: Yes. A search engine is very difficult because people want their search results as fast as possible. They don’t want stuff in the middle of that but yes, if you [??] further on that, we have a few links on the home page, right? For people who are a little more interested we have a tour it takes them through and really the selling point or the conversion that we are trying to go for is people setting their search engine at DuckDuckGo. So the bottom of that, the buttons we’ve chosen to put on there is, okay, use it in your browser, set it as your home page, or learn more if you need to do that to set it. And so we’ve kind of boiled it down to those.

Andrew: I see. Boy, this zooming in is there, it’s kind of funky. I want to make sure just to show it, but it pops off the page even. I see what you’re saying. All right, so that is kind of a funnel and it’s not as corralled as other people.

Gabriel: Well, we’re in a unique situation where we don’t collect any information about our customers.

Andrew: Yes. It’s not that you’re just a search engine where people would want to type in their search results and move on, and don’t want a white paper, and don’t want to give you their email address, but you’re a person and a company that actually specifically say, “We don’t do that. We will not track you.” I see, so there are other ways to do it. Looking at yours you say, “Set it as a home page, use it in Chrome.” Okay, onto the next big point which is scale customer acquisition by using engineering as marketing. You talk about how Dharmesh Shah, a previous Mixergy interviewee did that when he had problems with his own person SEO.

Gabriel: Yeah, this is one of these channels engineers marketing probably no one has ever heard of that because we had to name it in the book because it didn’t have a name. And it’s one of these super underutilized channels that honestly, like I think is wide open for a lot of companies. And the basic idea is two-fold. One, spending some of your precious product resources, engineering resources, on building something just for getting traction and the common result of that is a free complimentary site that exists freestanding, solves a need, and then exists as a lead kind of funnel into your main product. So it’s not freemium, it’s not like a free [??] to your site. It’s completely separate.

So in Dharmesh’s case, he’s the founder of HubSpot inbound marketing company. He created this tool. Originally he created it for himself and then he put it out there called Marketing Grader, it was Website Grader initially, where you just type in your domain name and it grades your site. It tells you how good you’re doing at SEO and other kind of inbound things.

Andrew: There it is for our site, for Mixergy.

Gabriel: And it’s super useful. Right?

Andrew: Sorry?

Gabriel: It’s super useful. It tells you kind of what to do and all.

Andrew: Yeah, it gives you a specific number, 60 out of 100. We could be doing better and it tells you what you could do differently. And along the way it also has one of these where he’s collecting my email address. Usually we think about content marketing the way that unbound has used it where they had an eBook that we had to, as users, put in our email address to get. That’s one way to do it. You’re suggesting that this is another and that’s create software, and use the engineering that goes into creating software as marketing. [??]

Gabriel: Yeah, what’s super interesting about this is this site is not a business. Right? It would not work independently, but it is still a super useful tool that people would want. And so you mentioned Rand Fishkin earlier. He also does this really well with SEOmoz where he has FollowerWonk and a couple other tools that you can essentially just use, and they’re useful, but they’re also complimentary to their main product.

And so there is a direct up sell and so there is a really good incentive and connection or symbiotic relationship between the free tool and the actual product. And when it works, it works really great because these single purpose tools are very SEOable [SP] themselves. They spread. They can spread virally sometimes. Webmasters who find this website grader useful are telling each other that about millions of people have come through this site and HubSpot, their S1 [??] IPO, they don’t have tens of thousands of customers. Right?

And so it’s an order, it’s a magnitude higher on Website Grader that are actual customer based and that’s great because they have identified which customer is kind of like [??]. They should be targeted and then they can go after it and kind of sell them.

Andrew: You mentioned FollowerWonk. I recommended this is an independent tool and you’re right. This is a tool from Rand Fishkin’s Moz and it helps him get people in the door and get them aware of Moz as a company. Cool, onto the big board and our final point is to change traction channels as the company expands. And you started talking about how you did this. You started off with SEO. Can you just elaborate a little bit about what the problem was with SEO because it seemed like it was working well for you. You were building up your keyword and people typed in new search engine would see DuckDuckGo as the top result. What’s the problem there?

Gabriel: The problem was just that the volume tapped out and there weren’t other great search terms for us to be easily able to convert.

Andrew: Okay.

Gabriel: The volume just wasn’t there. So it did work for a while. It just reached a point of diminishing returns. So when we started the goal of the hundred million that was never going to get us over to like a hundred thousand.

Andrew: I see.

Gabriel: So it was just not going to work. That’s what happens is when you see that diminishing returns you got to start this brainstorming, reg prioritize, testing focus process over again. The great thing about it is you’ve learned a lot in the first phase or whatever phase you were in. You ran tests in that phase. You know what kind of customers are better for you now. You know what marketing messages work. So you can look at the original brainstorming and you’ll have better brainstorming. You look at those ideas with all the full knowledge that you know have and you can think back to how dumb you were a year ago.

Andrew: Here’s on that I remember helped me see you outside of our own tech community. It was this. A billboard that says Google tracks you, we don’t. Search better at How do you end up with that when you’re cycling through? Can you walk me through the process that lead to this that then as a result helped you spike your traffic? Whereas that if we look at your traffic, here it is. That’s actually one of the big milestones along this chart.

Gabriel: That’s right. It is. This billboard was, offline ads is a channel. And I think billboards are an underutilized things and we may get to that in the future. But this interestingly enough was a test we did for print PR. And the thought was we’re really going to test print PR. We think this as we’re putting it up, and I think it still does, makes a great picture for a lead story. And we thought the story itself was compelling. You know, putting up a billboard, we put this up in San Francisco in Google’s backyard as this kind of David, Goliath, DuckDuckGo, Google story. And pitched it to a Wired reporter and they ran with it and made it the lead story for a day. And then we leveraged that to get in print for the same story in USA Today and a couple of other places, I’m forgetting. That was the test and it worked beautifully. I didn’t know what would happen if people really read the print story would actually convert.

Andrew: So your test was you said, “We had this theory that PR is going to help grow our user base.”

Gabriel: Yes.

Andrew: “How do we get PR? Let’s try something that is PR worthy. The thing we’ll try is a billboard. And if that works we’ll expand. If it doesn’t work, we’ll try a different channel.”

Gabriel: That’s right. Let’s try something big. In the book we advocate when you get started smaller cheap tests. But thankfully we were a little farther along and it was still relatively cheap. It was only seven thousand dollars. But it was a cheap test in the scheme of where we were. And the idea was let’s go big with this. Get a real national story and see what happens without numbers. And it worked. It really did move the needle and so we said we’re going to double down on this and try to get print similar press for the next year. That’s what we focused on. And it worked. Until…

Andrew: Press became one of your traction channels.

Gabriel: Yeah. And it became our focus for really the next year. With regards to traction until it stopped moving the needle.

Andrew: Here is, actually, here is the traction chart for DuckDuckGo. It’s B on that chart. B now looks like a little blip. At the time it was huge. A though is don’t track us. That was another idea that you tested out and then when it worked out that’s when you decided you were going to double down on emphasizing that we don’t track?

Gabriel: Yeah. That’s also true to. And it was also the test for content marketing on micro sites.

Andrew: I see.

Gabriel: And we also double downed on that a bit with further tests later on. They didn’t really move the needle as much so we really focused…

Andrew: Micro sites didn’t, but this idea of we’re not going to track you and we’re going to protect your security did and so you focused on that.

Gabriel: Yeah. That’s the other cool thing about tests is you may not discover, and that’s kind of like we were talking about it earlier when you come back, you may not discover the right channel, but you might discover something else about your customers or where the messaging should be of the focus.

Andrew: So just to wrap it up here, the channels that have worked for you using the process are what? Search engine optimization, PR, what else?

Gabriel: Content marketing. My blog was kind of the second one. Reddit advertising and social advertising. Then TV PR, so for PR we went for print and then our max seller really focused on TV. Then now, business development. So deals with [??] as a search option.

Andrew: In Apple products and the ones that were big disappointments?

Gabriel: We have tried most things on the list.

Andrew: Okay.

Gabriel: Honestly, we’ve tried a bunch of the online advertising platforms, as a good example. Google ad words included Facebook ads, stumble upon, and all these other different advertising platforms. We haven’t been able to really make that work.

Andrew: I remember reading your Facebook experiment. One where you were basically targeting your wife, and she didn’t click that bad. Facebook is not going to be good for us, at the time anyway.

Gabriel: Yeah, the problem is, especially early on, we can maybe start, some of this stuff might work later on, but we weren’t monetizing that well, and still aren’t monetizing that great, and they were too expensive. They were crazily expensive considering how much the cost requires your band way.

Andrew: All right. The book is “Traction”. There it is up on the screen. You people didn’t give us a digital version of the book. You intentionally said no paper only. Why is that?

Gabriel: There is a digital version. It took us a little while for it to come out, for no particular reason.

Andrew: Okay, I thought maybe you didn’t trust me. You said, “You know that guy, Andrew; I think he is going to pass it on to all of his fans, forget it”.

Gabriel: I’m happy to send you a digital version.

Andrew: No, I can get the digital version now. It’s available in the Kindle store, right?

Gabriel: Yeah, it’s available in the Kindle Store. We just had trouble getting it up and I had the books printed and sitting around before then. It took us awhile to go up.

Andrew: We were internally here at the office talking saying ‘why wouldn’t Gabriel trust us with the book? Is it a tracking thing? Does he not believe in us? Does he not trust anyone?’ I see. All right. It was just not available. The book is called “Traction”. There are a couple of things that are related to the book. Tell me if we can give this out, even to the audience. Access to the message boards? Sure, we have talked about that, right? That’s discussed on Of course, we will link to it. There is a bull’s eye spreadsheet. Can we link to that?

Gabriel: Yep. It’s on the forums.

Andrew: Great. What is the bull’s-eye spreadsheet?

Gabriel: It is kind of the spreadsheet we talked about with no early on. We generalized that and it helps you go through this process. It’s just a very simple spreadsheet, so don’t think it’s complicated.

Andrew: It’s to give people a visual understanding of what we’ve talked about. It’s a simple style spreadsheet.

Gabriel: And the columns are commented and it just helps you fill in your brainstorming.

Andrew: Okay. Then there is also a bull’s eye framework PNG. I don’t think I could show it here on the screen. It’s gigantic with lots of small print. Can we give that out too?

Gabriel: Yeah, that would be great. Actually, someone, one of our readers…

Andrew: Yeah, it’s in the discussion form.

Gabriel: put that together. It wasn’t made by us.

Andrew: That’s fantastic.

Gabriel: It was something that didn’t think of. That’s why you have a community.

Andrew: I do like a good community. I remember in one of my early interviews I went to the community and said, “What should I ask him?” because I have an outsiders understanding, admittedly a good one, but I still am not as deep as your guys and they started sending me questions. Was that one of the ideas? One of the tests for you. Will community work as a way of getting traction?

Gabriel: Yes, and we are still trying to make that work. I still believe that community and even some case of viral could work for that to go, but we have not been able to figure it out in six years. I am still confident that it will. Community has definitely been a large part of how we grow the product because we do instant answers and our instant open platforms are open source and we have a huge community there. But in terms of actually growing the user base, it hasn’t as much, at least in a structured way. There is an offline word of mouth.

Andrew: What’s the answer thing?

Gabriel: So our product focus is on instant answers above the links. You get an answer.

Andrew: Oh, okay. I thought there was a whole other community that I missed, like a Q&A core thing.

Gabriel: No, the community is around, you’re telling us “I’m into stocks and this is the best stock source”, and I can even go in and coat it and contribute to jump back up. All that works, and that community is awesome.

Andrew: That community that builds the product is great. I see that you haven’t figured out yet how to use community to grow. There is a whole chapter here on community building for anyone who wants to expand right along with you. The book is called “Traction”. We have talked about it several times here on Mixergy. There, I should hold it up like that. Gabriel Weinberg, thank you so much for coming here and talking about it.

Gabriel: Thanks for having me back.

Andrew: You bet. If anyone out there got any value out of this, find a way to say thank you to Gabriel, maybe in a forum, maybe in person at an event. Maybe if you have a five year old you can see him at school. Honestly, really, the way Gabriel and I connected was by just catching each other on an online service called Hacker News. We started talking via email and we built a relationship. I always recommend that if you see something worthwhile online you find a way to connect with and thank the person that created it. I think it will start a relationship for you and frankly, it just feels good, for you and for them. I’m going to do it right now. Gabriel, thank you again for being on Mixergy.

Gabriel: And thank you for helping us with the book.

Andrew: Oh, yes I am mentioned in the book. I am very proud of that.

Gabriel: Yes, you are mentioned several times because you helped us a lot. That’s originally I think how we have to talk to you because I was interested in a subject and you were doing interviews that I liked.

Andrew: I do remember. You emailed me and said, “I was looking for you in my inbox” and I saw one of the other emails where you said, “Andrew, how you do this video side by side?” and I sent you the process. It’s good to see that a book came out of that. Wow, so that was helpful. Good.

Gabriel: Absolutely.

Andrew: Cool, thank you all. Bye guys.


Master Class:
How to create predictable revenue
(And double your sales)
Taught by Aaron Ross of Predictable Revenue

Master Class: Predictable Revenue

Report Bugs


Andrew: This session is about creating predictable revenue, and it’s led by Aaron Ross. He is Founder of Predictable Revenue, the consulting company that helps businesses double and triple their sales, tech companies that have, at least, a sales person or two, at least, if not many more and they need to get appointments should be talking to Ross, Aaron Ross, to Aaron Ross, to Mr. Ross.Aaron: I like that, yeah. Mister, I like that.Andrew: Mr. Ross.Aaron: Feels good.Andrew: We’re both in Regus offices. So there’s like this emphasis on being very professional in a Regus office when you work out of it. All right, on to being more professional. I’ll point you guys to what we will be talking about today.This is our outline. It is based on Aaron’s book, “Predictable Revenue.” I’m going to help facilitate and hopefully maybe keep things a little less than Mr. Ross, even though I’m wearing the jacket with the pocket square.Aaron: Trust me, anyone who knows me knows that I’m not that formal.

Andrew: [laughs]

Aaron: I actually put on a collared shirt today.

Andrew: Way to go for the Mixergy audience.

Aaron: [laughs]

Andrew: All right. Let’s get right into it. Aaron, this is the company that you ran about a little over a decade ago. I’ve got an article in Red Herring. It was showing that your company,, was one of the 10 to watch. You raised money for it. What happened to it?

Aaron: Yeah. Wow. How did you find that? That’s cool. I haven’t seen that in a while.

Andrew: A lot of Googling.

Aaron: [laughs] So yeah, Lease Exchange was a company I started back in the late 90s and I think one of the first bubbles, or maybe the first Internet bubble. Raised venture money. Hired a little bit of sales but it was one of these situations sales at the time wasn’t sexy. It was all about PR and I guess it was that times version of Indel [SP] marketing. We weren’t actually getting revenue in the sales team. I as CEO had no idea what to do because I didn’t know anything about sales because I’d say I hired a VP of Sales, like, figure it out.

And ultimately the company went under. We tried to sell, and it went bankrupt. But the lesson I learned was as CEO, I know it’s obvious in hindsight, but you have to know how to sell and how to build a sales team because that’s actually what brings money in the door ultimately.

Andrew: Yeah.

Aaron: It’s very useful for a company.

Andrew: Yeah. We were talking before. We officially started about how entrepreneurs often know they need sales. They get excited when revenue goes up. It’s validating, but at the same time they feel like, well, maybe that’s not the thing I should be doing. Someone else should do it. Maybe …

Aaron: I don’t want to sell.

Andrew: Maybe it’s creating the product, right?

Aaron: Or let’s see, I just want to create a product that everyone just comes in and buys it.

Andrew: Right.

Aaron: Instagram did it.

Andrew: Right, so why can’t we do it too?

Aaron: Come on. The reality is you’re not going to accomplish anything in life unless you know how to sell yourself, your ideas, or your products.

Andrew: And, yes, that company had to close down, but after that you ended up at Sales Force where you helped them grow their sales. This is an article from Sales Force. You left just before this, so you’re still a part of that revenue. And at the time they were doing over $700 million in revenue. I wanted to show that to give people a sense of how big a field you were playing on once you got good at sales.

And, of course, since then you’ve gotten even better. Now this is what you do. Can you tell me just a little bit about what you were doing at Sales Force that allowed the company to grow their sales so much?

Aaron: Sure. What was interesting was in leaving Lease Exchange and there’s about a year or two before I joined Sales Force, but the thing I knew was that I wanted to start another company. And before I did I felt I needed to know how to build a sales team or how to create a professional sales function or just to sell.

Every entrepreneur has the inherent ability to sell themselves. People recruiting, raising money. So I went to Sales Force. The only job they had in sales because I actually wanted to just sell was the lowest level job. It was answering the 800 line.

Andrew: Okay.

Aaron: I checked my ego at the door because I just wanted to learn.

Andrew: Wait, you started off at Sales Force answering their 800 number?

Aaron: That’s the only job they had in sales.

Andrew: Okay.

Aaron: I figured, look, once I got in the door that I would … I didn’t want that job necessarily, but I wanted to get in and then I’d figure out some way to make a difference.

Andrew: Okay.

Aaron: And then so, that was going from whatever, CEO of a venture-backed company.

Andrew: Yeah.

Aaron: [??] the most junior level at Salesforce, 800 line. And within a few months though what happened was I saw and I learned quickly about how it was working and some, and saw that we were making this huge investment in field salespeople in Salesforce and started targeting bigger companies. And there’s this old belief, which I think still happens a lot. Which is, “Hey, we’re going to hire these expensive salespeople and they’re going to bring in their prior relationships, they’re going to have these businesses relationships and contacts and they’ll help just bring them in.”

Andrew: Yeah.

Aaron: And more often than not that doesn’t work at all. Once in a while it might in certain situations, but usually you get nothing.

Andrew: So what did you do?

Aaron: Well I suggested, “Okay, we’re making God knows how many millions of dollars in salespeople and product and so on and we have no pipeline, or very little. And Salesforce is getting a ton of inbound leads for their small business customers, but almost nothing for their larger customer where the money is.”

Andrew: Okay.

Aaron: Or, most places. “So hey, why don’t we create a, I’ll figure out, [Inaudible 00:01:06] figure out a way to create an outbound prospecting process or function so we can go out and generate the pipeline we need.”

Andrew: Okay.

Aaron: And up until that point Salesforce had tried hiring some outside firms to prospect for them, do telemarketing. They had some people internally making cold calls, they tried to get salespeople to prospect, and nothing worked at all. Like literally there’d be projects where you’d spend $10,000, $15,000 and then got a zero percent result. I figured it wouldn’t be hard to beat that with a bit of focus.

Andrew: And so what you, if I’m understanding it right, just to be extremely careful about this, you helped create a lead generation process for Salesforce that helped increase recurring revenues by $100,000,000?

Aaron: Yeah, it was in a few years there, and basically gave them the ability to go out and generate as much pipeline as we needed.

Andrew: Wow, okay.

Aaron: So in other words, it’s that gap. We have 50 salespeople and they have a quota of X and they’re only getting Y leads, which isn’t nearly enough to feed them. Like what do we do, how do we give them enough pipeline so they can hit their numbers and the company can hit its numbers?

Andrew: Okay, all right. I was tempted to say, “Well what did you do? Be more specific.” But of course, that’s what we’re going to be talking about today, what you did there that is applicable to the person who’s listening to us now who’s build a Salesforce or getting more leads for an existing Salesforce. I should also say that this is where you are right now, this is the company that you built. And let’s go into the first of the big ideas that we’re going to be talking about to help the person who’s listening to us to create a sales machine. And the first is to figure out what’s not working and try something new.

Aaron: It sounds sort of self-evident but . . .

Andrew: Sorry?

Aaron: I said it sounds sort of self-evident but people get this wrong all the time.

Andrew: Where do they start instead?

Aaron: Well they do more of what’s not working.

Andrew: Oh, okay. SO give me an example of how it’s done right. This was a company that was having some issues, what did they do when they did it right?

Aaron: Well HyperQuality, and this is a few years ago, but HyperQuality was very typical of a software company, where you have an executive team that is used to the traditional way of selling. It’s changing, but the traditional way of selling is you hire salespeople and they prospect and they bring in- You’ve got marketing generating their leads and salespeople have to do all their own prospecting to fill the gap.

Andrew: Okay.

Aaron: Whether they’re inside or outside. And it rarely works and it’s not repeatable, and for sure not predictable. Salespeople shouldn’t prospect.

Andrew: Okay.

Aaron: But what they did is, my partner at the time, Marylou, we helped the company say, “All right, if you take,” she actually did this for them, “a dedicated prospector, a prospecting function, who can focus on prospecting and is doing it full-time, can do it right, and stay on top of things, it makes it much easier to create a predictable and repeatable way to get sales appointments.

Andrew: Okay, and so they went from two leads a month and the leads were being generated by salespeople, am I right?

Aaron: By inbound, by word of mouth usually they were inbound.

Andrew: Word of mouth, someone would call in and they get just two a month?

Aaron: Yeah, two.

Andrew: Okay.

Aaron: This is, again, an enterprise company in a market where customer, it’s like a niche market. And about their marketing , maybe it wasn’t that great, but they only got two qualified leads a month. They probably got hundreds of registrations but most of them just were not a good fit.

Andrew: Got you. And then within 90 days, the woman whose image I show up on the screen, Marylou Tyler, who was co-founder of your book, excuse me, co-author of the book, she was able to increase their qualified leads to eight a month. And the way she did it was by saying, “Salespeople should not be prospecting.” What else did she do that allowed that to happen?

Aaron: Well, part of it is that focus on . . . going back to companies who do the wrong thing and then they do more of it, a lot of companies are not getting enough leads and so management tells sales people: make more calls, send more emails.

Andrew: Okay.

Aaron: You’re not getting leads, so do more of what’s not working.

Andrew: Okay.

Aaron: So this company, where they’re open to change–let’s try something new. Let’s have someone who’s dedicated to prospecting do it. That’s one of the most important points, is having a focus. Now, whether it’s a person or a team, or maybe even an outsource service, it’s focusing in a place and figuring out what kind of system can you use to actually get those appointments in a predictable way. So she used the system that created salesforce. It’s called cold calling 2.0 because, honestly, it’s like calling on cold companies but without cold calls, without phone calls. It’s mostly an email-based prospecting. It was very effective in getting them a lot more appointments compared to what they’d tried before.

Andrew: Okay. So what we can take away from this is they evaluated what was not working for them and they realized that it’s the prospecting part of their sales process that wasn’t working and then they tried a new approach, which happened to be the approach that you’re going to tell us about. Right?

Aaron: Yeah.

Andrew: So that’s what you want us to do, not, “Hey, we’re not making enough sales. We need to make more phone calls” It’s, “Look at what’s not working before you decide what you need to be doing more of or different of.”

Aaron: Yeah, because, again, marketing was generating lots of leads but they mostly weren’t any good. Sales people were prospecting but not getting anything, so what’s something new they could try? And this worked.

Andrew: All right. Then we’ll get into that in a little more depth in a moment, but the next big point that we want to talk about is to keep sales emails short. Do you have an outline that we can keep in mind as we’re sending out those cold emails or any sales email?

Aaron: Yeah. I found an example here. I think there’s one phrase I kept saying at a workshop for SAP recently. The phrase I kept saying over and over again was: keep it easy to understand and easy to answer to, or easy to respond to.

Andrew: Okay.

Aaron: Think about the ones where it’s a cold email or maybe you don’t know them very well, so let’s forget where you’re doing a lot of emailing and you’re deep in a deal. Most sales emails are too long. They have too much jargon and they’re just vague.

Andrew: Yes.

Aaron: “Let me know if you need any help.” That’s a terrible call to action.

Andrew: What is a better call to action? I know what you mean. “Let me know if you need any help.” I don’t respond to those because they just tell me to let them know if I need any help so I assume it doesn’t need a response, and so I don’t respond and then I get an email back saying, “Well, you didn’t respond to this. Did you see it?” Yeah, I saw it.

Aaron: I don’t know what kind of help. Tell me what you can help me with and I’ll tell you if I need it or not.

Andrew: Right. So then what’s a clearer call to action within an email if it’s not the one we just talked about?

Aaron: Well, the one you’ve got here on the screen.

Andrew: Let’s take a look at it.

Aaron: Yeah. Again, there’s lots of different types of sales emails. You always got to try. There’s not one type that works for everyone, but the principles here are sound. So, for example, it’s short–two or three sentences. HubSpot did a study that suggested the ideal initial sales emails, the first or second email you exchange with someone, should be 300 to 500 characters.

Andrew: Okay.

Aaron: So I always think two to three sentences is a good rule of thumb. Try to dejargonize [SP] it. So don’t put in words like “leverage,” “scalable.”

Andrew: But they make me sound so corporate, like calling you “Mr. Ross.”

Aaron: I know. You see, especially early stage entrepreneurs, guys who are under a million or two, you develop all this messaging when you’re pitching VCs and investors, and all that is basically crap for when you’re trying to use it for prospects because prospects don’t care about you do. They care about what you can do for them.

Andrew: Yeah.

Aaron: A lot of what we do at [??] is help people English-ify their emails or phone calls and just turn it into simple English. But, again, this email.

Andrew: Yeah, let’s take a look at this. Here, I’ll read it out. Subject line, “10 Times [insert company name] Traction in 10 minutes. Hello, [first name]. I have an idea that I can explain in 10 minutes that can get its next hundred best customers. I recently used this idea to help our client, [insert name of competitor or other company], almost triple their monthly run rate. [first name], let’s schedule a quick 10-minute call so I can share the idea with you. When works best for you?” And so what you like about that is that it’s short. You also like that there is a clear call to action. When is the best time for you? And you also like that we don’t talk a lot about the company itself. In fact, I can’t even tell what this company does, but I can tell what it will do for its client.

Aaron: It’s intriguing. Okay, intriguing. Now, I will say this is not one of my email templates which I don’t like to share.

Andrew: No, I found this on, their cool email template.

Aaron: Yeah, and by which it’s a good sample. So I’ll tell you about the things I like and don’t like.

Andrew: Okay.

Aaron: Someday I’m going to do a lot more around email writing. So the thing I like about it is it’s pretty short and it’s intriguing. The first thing is curiosity because people open emails and respond to them, at least open and read them typically for one or three reasons. It’s either personal, so it’s like, “Hey, Andrew. I saw we lived in L.A. Together. I know your wife.”

Andrew: Yep.

Aaron: And the second reason is because it’s useful and it’s something they learned. And the third is because it’s intriguing and you can combine them, but those are basically the three reasons. I like intriguing with prospecting.

Andrew: And this one is intriguing. I could increase your traction in ten minutes.

Aaron: Yeah, I think it’s over selling it in subject [??].

Andrew: A little too gimmicky, ten times your traffic in ten minutes.

Aaron: So again, I like is that each sentence is short and sweet, to the point.

Andrew: Yep.

Aaron: Also, here is a really important tip is that they broke it up into different sentences, so there is white space, because it’s easier on a phone to read a sentence and then a sentence, and a sentence. When it’s all lumped into one big sentence it’s just harder to read.

Andrew: Yeah.

Aaron: And they use social proof which would be we helped your competitor do this.

Andrew: That’s cool.

Aaron: The last thing I would take off at the very end, the when works best for you. Again, we could improve the last sentence, but in general [??].

Andrew: What would work? You know what I do is I say, “Can I call you on Tuesday at 11:00 a.m.?” Even though I know that chances are good that they’re not free Tuesday at 11:00 a.m., I like that they at least hit reply and say, “I can’t do that time.” And then we could at least start the conversation about when.

Aaron: Exactly. It’s better to offer something concrete or specific whether it’s what’s the best way to get 20 minutes on your calendar which is more asking about the method or like you said, “What about tomorrow at 11?” Because what you want and this is true in the email in general, and easy to understand, and easy to respond to, it’s better to get a no that doesn’t work for me because usually then they say, “What about this other option?”

Andrew: Right.

Aaron: Where you die, where you get killed here is when people get confused because when they get confused they don’t respond at all.

Andrew: Okay, all right.

Aaron: When it’s too vague. I’ll give you one more example on what not to do with this kind of email.

Andrew: Okay.

Aaron: If you can ask someone a question, so let’s say, you want to ask a question. I think a great one usually is, let’s say you sell software, ask them what kind of tool they use. So let’s say you sell marketing software. Okay?

Andrew: Yep.

Aaron: And they say, “Hey, by the way, what do you use today for your email marketing?” It’s a software app. Okay, that’s simple that understands simple to answer. Oh, a question you shouldn’t ask, “What are your email marketing goals for this year?

Andrew: Ah! Yes, I see, okay.

Aaron: And we’re like, wait a second. I don’t really know. I got to think about it. Okay, move on.

Andrew: And these would be just be a simple, easy to answer question.

Aaron: Yeah, to start the conversation. Now once you have more of a relationship then they’re willing to put more energy into answering more complicated questions. But the idea is, especially on email on a phone call when they’re getting to know someone is, you don’t want a yes or no question, but you don’t want the question to be so vague that people are like it’s really hard to answer.

Andrew: Okay. Then I end up putting it off until later and then later becomes three weeks. And then well, it’s been three weeks, I should just move on, they apparently mean.

Aaron: Yeah, so and like they what are your goals, what are your challenges?

Andrew: It’s a good example of a tough one.

Aaron: Yeah.

Andrew: And why am I going to tell a stranger that? Okay, onto the big board. The next thing we’re going to be talking about is specialize.

Aaron: A very important one, yeah.

Andrew: Separate your team’s responsibilities. Why is that so important? I saw that you were jumping in.

Aaron: I think this is probably the number one most important thing for companies to understand in sales. And I believe this is becoming more of a standard especially in Silicon Valley. And I’d like to think a lot of it is because of the book. I hear a lot of companies say it’s their sales play book, but I know across even the U.S. and big companies, and there are a lot of companies who don’t get this. And this is really about, you know traditionally sales people had to do everything. They first responded to their own inbound leads. They did their own prospecting, closed their own deals, and managed their own prospecting.

Andrew: What do you mean by prospecting?

Aaron: They had to do their cold calls or knock on doors.

Andrew: Cold calls, okay.

So they get the leads coming in. They have to do their own phone calls. They have to then follow-up with people who seem interested. They then go into meetings with them, either online using a serves like Google Hangouts or in person, etcetera. And so that’s not the way to go. What is a better approach then?

Aaron: Yeah, because what you have when that happens you have people who are multi-tasking, doing lots of things not very well. And what Salesforce was a leader in, and I’ve just helped popularize this this idea of specializing you sales roles.

Wherein if you have . . . this isn’t for consumer sales, you have like a one call sale, but especially business to business products having different sales people focused on their specialty. Like you have outbound prospectors, who they are very dedicated to just prospecting. And they don’t close deals, and they don’t respond to inbound leads. That is upper left number one.

Andrew: Here let me show it. This is a process that you want us to have?

Aaron: No. This is probably the most important idea still. At some point they’ll change because everyone will be doing it, but this is probably the number one place to start to make everything work better. Generally four core roles, I mean this is more of a template. Is that you have prospectors prospecting and closures closing. So number three in the middle.

All they do, they have some sales people who are just closing new business. And a fourth role on the right, which is post sales anything, could be customer success, it could be account management or a mix. But once someone’s a customer.

Andrew: Somebody else needs to talk to them.

Aaron: Someone else, yeah there’s a baton handed off and there’s a . . .

Andrew: Let me break this down. I want to make sure I’m fully following it. So left most two rectangles, one of them is outbound reps, that means there’s a dedicated group of people who just make phone calls and see who out there in the world is interested. A different group of people still are the inbound reps, who except calls in. And I’m imagining for a smaller company that might be the same person. Or are you saying even there it wouldn’t be?

Aaron: Well I’ll tell you, once you go over the roles I’ll tell you how to apply this if you only have one person at the company.

Andrew: Got you. Okay, so one role is an outbound sales rep, that person makes those calls out into the world and sees who’s interested.

Aaron: Outbound prospecting. Yeah, more outbound emails but yeah, the principle is you’re reaching out to people who aren’t calling you.

Andrew: And the inbound rep is someone who takes calls from people who see the Webinar and are interested. Or go to the Web page and are interested.

Aaron: Go to your Website, register on the Website. Start a pre-trial, ask for demo. And neither of those, usually almost always neither of those roles close deals.

Andrew: Okay, and then you have different role for closing the deal. That is the real sales person as we understand them. Explains, guides, closes the sale. And then finally you have someone who just maintains the deal, maintains the relationship and make sure that everyone’s happy.

All right so if we have a big organization we at least have four people, if not four groups of people who are handling this. If we’re starting out you had mentioned though, the one person organization. How would that break down then?

Aaron: So we have a small team. What happens is, specialization is still important but you specialize your time. So for example let’s say that you’re a CEO and you’re the only person who’s selling. You’re one CEO and there’s a bunch of engineers, and you don’t have enough leads. So you, I need to prospect, I need to go out and get some customers. You can’t do it five minutes here, and five minutes there, it’s impossible to do effectively.

Better is to say, block out time on your calendar at least 90 minutes or two hours to do that. Could be a day, could be Tuesday’s it could be, you know, whatever it is, but you’ve got to block out our calendar. So you specialize your calendar time. You wouldn’t need to do it for every role. But it’s really for the things that are most important that aren’t getting done, where you’d focus time. It’s really about focus.

Andrew: So it might be something like, every Thursday at 2:00 I make outbound calls and see who is interested and then I get them into the pipeline.

Aaron: Could be sure. Yeah, every Thursday, every other Thursday, Monday, Tuesday, Wednesday could be, you know again last week with let’s say with ten sales people even when sales people have to prospect, you know, as part-time you got to calendar it.

Some people want to do it in the morning for themselves. Some people are afternoon with a buddy. The way you do it is different but it’s about having that focus time were you are dedicated to it and you block out all the distractions.

Andrew: Okay, all right. And I imagine then the first and easiest role probably to hire for is the inbound rep person who just takes all those inbound calls for people who say the Webinar etcetera.

Aaron: Yeah, and now if you have inbound leads what happens is pretty commonly with an early state company CEO’s closing deals. And usually the best first hire is a prosecutor. If you have lots of inbound leads already, you hire an inbound rep to respond to them. If you don’t really have many inbound leads so if you probably have less than like 100 a month, then you kind of start with a prospector.

Andrew: Mm-hmm.

Aaron: Because you don’t really need an inbound person for a few leads, so you start with a prospector. Then, once the prospector’s setting appointments for the CEO, and they get too busy, after that, you might promote the prospector to closing. You might hire a closer.

Andrew: Got you.

Aaron: You’re basically creating this farm team system to grow people up in your system, and it’s pretty hard. I find it’s very common for, at least, founders who don’t have a lot of sales experience, they usually hire the wrong salespeople.

Andrew: What do they do instead?

Aaron: Sales is this mysterious thing, and they see this resume. “Oh, someone worked at Siebel, or someone worked at Salesforce. Someone worked at Facebook, they sold all this stuff.” They don’t realize that that person succeeded in a big company with a big brand, and so on. And so, I think what’s usually a less risky way to go is hiring more junior people to start who are very hungry, coachable, and eager to learn sales. It’s not rocket science, really, it’s not. They can figure it out, so grow them up from the bottom.

Unless you have some board members, or you have someone who you know who really has an eye for sales talent. . . It can make a big difference to bring in an experienced salesperson, but I find that, without help, most, a lot of founders, it’s their first time, just, they don’t know how to hire a good one.

Andrew: So it’s better to hire someone who’s junior, who is trainable, coachable, and then tell them about this process and put them in that box that you labeled number one.

Aaron: Yeah. Give them the chance to focus on it, because, if you’re a founder, you can only do it part-time, so it’s really hard to. . . But if you can have someone who’s smart and hungry, who can focus on how to sell full-time. They’ll figure it out.

Andrew: Yep. All right. Let’s bring up the board again. Number four, we’re going to talk about not focusing on just closing the deals instead of. . . Instead of doing that, we should be thinking about giving value afterwards. You worked with a client who had that issue. What happened to [Guild]?

Aaron: Yeah. Well, [Guild], I think it’s a lot like a lot of tech companies, a lot of startups. It’s very focused on getting customers in. “Need more customers, we need to grow revenue.” What happens is, especially in SaaS companies, you get your first 10 customers, or 50, or 100, and then a whole bunch of them fail out when their renewal comes up, or even earlier. So it goes from, “More, more, more customers,” to, “Oh my god! Save the customers we’ve got.”

I think it’s so important for companies to stay focused on yes, get more customers, but get the right ones, and know how to make them successful.

Andrew: I see.

Aaron: So customer success, usually people wait too long to create a role or focus around customers. . . the idea of customer success or customer success management role of function or program.

Andrew: Going back to this illustration that you created, I spent a lot of time in that conversation talking about Sections 1, 2 and 3, and hardly any on Number 4. This is what you’re talking about. We need to spend more time on Number 4, nurturing that customer after she buys and building that relationship so that we don’t increase churn. Is that right?

Aaron: Yep. It’s a lot easier to keep the customers you have than to get new ones.

Andrew: All right. So then, at this company, when they did that, they were losing four percent of their customers every month, which roughly was 50% a year, which is dramatic.

Aaron: Ouch.

Andrew: So, after that, you were able to cut their churn from four percent to one percent. That’s a quarter, 75% off, too many percentage points.

Aaron: Yeah, they went from losing 50% a year to losing, now, under 15% a year, which is about standard for SaaS companies.

Andrew: That’s huge.

Aaron: In terms of the number of customers. Yep.

Andrew: All right. So, if we buy into that and we say, “All right, we’re ready to do it ourselves. We want to focus on box number four, what are some of the things that we can do to maintain customers, to have our reps do?

Aaron: That’s a good question. I think a lot of it is just putting. . . My focus is having. . . It could be a monthly meeting…Sorry, I mean a weekly meeting with executives about it, if you can’t have a dedicated person. If you have a dedicated person, even better, and then they will help figure it out. Usually what happens it, it can be a combination of sales education to make sure salespeople are targeting and closing the right kinds of customers, setting appropriate expectations, plus having, hopefully, someone who’s dedicated after the sale to be there to make sure that the launch implementation. . . The customers know how to use the product, and their hands are held through the point where they have their own momentum. Right?

All right. It’s pretty common. Customers come in, they buy a product, and they’re like we bought it, we’re really excited, but now what do we do. They lose momentum and they can fail out. You can’t let your eye off the ball with them until probably three months after they’ve bought and you see they have their own momentum and are self-sufficient. Then, you can take less attention off of them.

Andrew: I’m going to do a session on that. I was just looking at my calendar on the phone to see when that’s coming up on just how to nurture a customer after they’ve come in, what are some of the specific things we can do, and what are some of the broader ideas we need to understand. I don’t have the exact data right now, but we’re going to have to have that up on the site because that is important and it’s hardly ever talked about.

Aaron: Yeah. It’s becoming more popular now, this idea of customer success. It’s one of the thing I’m most excited to write about. I think now it’s more of a standard, especially in Silicon Valley. You invest in customer success early.

There’s a client I had called Bright Edge. I started with them I guess it was a few years ago when they were a million dollars. They went from one million to 20 million in three years in revenue, mostly through that outbound prospecting system. Part of what helped them make prospecting successful was they really knew their customers and what it took to make them successful and which kinds of customers could be success to target and which ones to avoid.

Andrew: I see.

Aaron: When they were 10 to 15 people they had already made their first hire for someone who was just customer success. Earlier is better in terms of… It’s an investment. It’s not a cost. It’s not glorified customer support. This is hiring someone who’s going to be a high return investment because they’re going to save you a ton of churn and make you much smarter about the kinds of customers that you should go after.

Andrew: Because when you’re talking to a customer after they bought, you get a better understanding of what makes them happy, who is never going to be happy, who it’s a good fit for, etcetera.

Aaron: Yeah, how to make them successful. Plus, when you have happier customers and somebody who’s dedicated to them, it’s easier to get case studies and testimonials which you need whether you’re marketing, or selling, or prospecting, or closing. It’s really important.

Andrew: Cool. And, you got measurable results for Guild. They did when they made these changes. Speaking of numbers and measurability, people might’ve noticed that it took me a while to get all those stats out right for Guild. That brings up another point, point number five, which is you’re recommending fewer but better metrics. You had an issue with this guy. Who is this?

Aaron: Frankie V.

Andrew: Frankie V.

Aaron: The president of worldwide sales at Salesforce. The title’s always changing.

Andrew: I think he’s listed as executive vice president now on their website. Where I was looking for his photo I saw that. Frank van Veenendaal…

Aaron: Veenendaal.

Andrew: Veenendaal.

Aaron: Veenendaal, yeah.

Andrew: Veenendaal.

Aaron: I worked for him. Of course, I like metrics. I was an engineer. What I found when I was managing the sales team was it was easy to either overwhelm my team or management with different metrics, charts, trends, and so on. It was important for me to look at all these things but then to distill it down to what are the few key things that people need to focus on. Everybody…

Andrew: With a company that big that I’m sure prides itself on metrics, how do you distill it down for him? What do you come up with that ends up making the whole company more efficient without losing data because you want simplification?

Aaron: There were two metrics that we focused on for him and also that he could use to share with the executive team in terms of proof of the contribution of this particular sales team. One, for example, was every month Salesforce looked at the top ten biggest deals that closed that month. We would go back and highlight which deals came from the prospecting team…

Andrew: Okay.

Aaron: [??] It turns out about 50% month after month. About half came from the team. We always audited, fact checked, and dug in to make sure that we weren’t taking credit for what we didn’t do. Mark Benioff looked at this very closely.

That was one way to highlight the impact the prospecting team was having on the business. We color coded, and he’d send it out. That was one. Another one was just a percentage of all the revenue that was being sourced by this team.

The first one’s a list. Here are the top ten, and these color coded which are sourced from outbound prospecting. The other was a pie chart that said this percentage came from X or this percentage came from prospecting. And it was about 37 or 40%, you know, which is a big chunk of revenue. Almost half of the revenue was coming from prospecting. And so, again, he sort of used that to, I don’t know if to market it, but just to show the executive team how important it was and why it was important to invest in that effort.

Andrew: Okay. So you were only working with him on prospecting, right?

Aaron: Yeah.

Andrew: But he was working with lots of different departments, working on lots of different things. If every one of those groups of people sent in a flood of data it would have been unmanageable.

Aaron: Totally.

Andrew: So you just said I’m just going to give them two things. I’m going to tell him what percentage of the big deals, of the number of big deals what percentage of them came from our Cold Calling 2.0 System. And then what percentage of money came in. So the percentage of the overall number of big deals and the percentage of cash that comes from this, and then he can watch as that grows. And it also allows you guys to see how much bigger you’re getting without looking at all the details.

Aaron: Yeah. Because that’s really what the executives cared about, which in my case how much money is it making us at that point. And I think, again, when you’re a sales person/entrepreneur it’s easy to forget to put yourself in someone else’s shoes and realize whatever you’re trying to communicate to them, whether it’s over email, they have so many other things going on.

I think empathy is really important. I think empathy is the right term in this case, but it’s important to be able to put yourself in their shoes. All right, if I was that person, what would I really care about? I had to pick a few things and you can’t dump a whole bunch of information on someone.

Andrew: If you do that, you’re able to grow the prospecting team from just six people to 200 more than I could put up on the …

Aaron: Yeah.

Andrew: … on the screen.

Aaron: Two hundred people around the world.

Andrew: Prospecting. I’ve said this before, but it was something that stuck with me. My earliest interview with Noah Kagan who was the sixth hire at Facebook was about this specific issue of you get so much data as a business person today, as someone who’s the tech person. And his interview was about limiting what you take in, and he told me that when he worked with Mark Zuckerberg the data, the single point that they kept talking about was growth.

So if Noah came up with a great idea, it came back to growth. Is it going to move our number? And if not, then let’s not focus on it right now. Let’s spend time on just that one number. And obviously that worked for them.

Let’s go back to the big board. Number six, create repeatable processes. Before I show the visual for that, what’s the problem here that we’re solving?

Aaron: Yeah. I’m going to give an example that combines a big of the viewer metrics with repeatable process.

Andrew: Okay.

Aaron: It’s actually right now there’s a company I’m working with called Education Inc. on the East Coast.

Andrew: Okay.

Aaron: It doesn’t matter what they do. It’s hard to explain, but they had a customer success challenge. They’re keeping customers happy, and I think we went through … We started with just picking out one or two key metrics to focus on that they should care about because they’re making all kinds of stuff, appointments and emails and this and that and the other. It was just too scattered.

So first by focusing on just one or two real important things it made it easy to say, “All right. If you want to move in this case, I think it was called the percentage of unbilled hours. But it was this key metric. Then it was simple to say, “Well, all right, what affects that?” Let’s say it’s a certain kind of contracts. Okay, well, how can we go out and improve these contracts?

And it just made it a lot easier to focus in on a way so this metric and what can we do in a repeatable way to improve it. So I finally zeroed in on focus and thinking when you try to do too many things with too many metrics it’s impossible to create some repeatable systems. And you can’t have predictable revenue without some kind of repeatable systems within the company.

Andrew: Okay. Let’s take a look at the system that we want to show for this. It is up on everyone’s screen. Now there it is.

Aaron: Yep, one of my favorites.

Andrew: These are, by the way, all hand made. You made these visuals?

Aaron: Yeah. Well, this one I designed. I had someone color it, but all the art I did myself.

Andrew: Okay.

Aaron: So I don’t think we’ve shown any of the art yet, but on the cover of the book we’ve got one coming up soon.

Andrew: Okay.

Aaron: This one I actually do art sketching and so on. It’s interesting I’ve noticed more around the web, more hand drawn stuff.

Andrew: I like it.

Aaron: There’s that organic, authentic human feeling to it that is catching people’s attention.

Andrew: Okay, so what are we looking at here for Cold Cqlling 2.0?

Aaron: Well, I’d say look if you want predictable revenue and a company that grows through sales, you have to have predictable lead generation. Because lead generation is your big lever.

Andrew: Mm-hmm.

Aaron: You know, it doesn’t matter how great your sales process is. If your lead generating is crummy, you’re going to struggle. If you have great lead generation, you can get pretty much get everything else wrong and still do pretty well. So in this case, one of the most predictable ways to generate quality leads is through prospecting if you have a repeatable way to do it. And this is when I came up with Salesforce. This is my particular system. Call it cold calling 2.0, because it was really more about sending cold emails and not making cold calls. But this is great. Whatever you do, you can channel most things into funnels. Whether it’s development with bugs and features and so on. Marketing. This is a prospecting funnel.

Andrew: I put my dating into a funnel when I was dating. How many women do I need to talk to every night. And of those, how many are going to actually give me a phone number? Of those, how many can I get a follow up. I know what you’re talking about.

Aaron: With your conversion rates and so on.

Andrew: Yeah, my conversion rate was low but at least I had a funnel with a lot of people, a lot of prospects at the top.

Aaron: And this is different, because from what I knew, almost all of the prospecting systems out there were all about how many dials a day did you make, and how many people pick up, and how many appointments did you get. And what I found was that that didn’t work at all for me. Cold calling was waste of time. I didn’t like it. The people I called didn’t like it. So anyway, I came up with this different approach using email and a referral system. And I found that if I sent, let’s use round numbers. Again, it began with being really specific and smart about who I was going after. The kinds of companies, the kinds of people.

Andrew: Okay.

Aaron: When I reached out, I’m usually asking for a referral. So let’s say I sent like 1000 emails a month, just use a round number. I could see about a 10% response rate. So you have 100 responses. And this is over, now over hundreds of thousands of emails, I don’t even know, but it’s a pretty consistent response rate. Seventy nine percent.

Andrew: Okay.

Aaron: I get a regular set of responses, which turn into like a hundred conversations a month, quick conversations. Are we a fit? And then from there, setting up ten to fifteen appointments for salespeople. Of which seventy five percent would be accepted or convert into a qualified sales opportunity. The salesperson says, “I’m going to take this and put it in my pipeline.” And then from there, twenty percent of those we close. So once you do this for awhile, you can get your data. It’s going to vary a bit by company, but you can have a predictable way to generate leads because you say you have a certain number of emails ‘x’, turns into appointments ‘y’, which turn into a certain amount of revenue ‘z’.

Andrew: Why couldn’t this work out when the salespeople were doing the prospecting themselves? Why couldn’t it be repeatable at that point?

Aaron: It’s just too hard to juggle. You know, to do it a few minutes here, a few minutes there. This works really well when you’ve got someone doing it full time. It just needs focus to do it really well. And to be consistent with it because it takes consistent outreach and consistent follow up. So salespeople, what they needed, in order for them to prospect, I think they should but it should be like a very small number of target accounts. Like 5 or 10 or maybe even less depending on who you are. Or either strategic accounts, special ones, or partners that they could get referrals from. But like a small number of special situations because that makes it easier to focus on doing a few things, going deep with a small number of targets.

In other words, what works with prospecting is, and this is more the principle or targeting, talking to 10 companies 10 times each rather than a hundred companies once. Focus on fewer, better accounts. And also, frankly, salespeople are not very good at it. They don’t like to do it, they’re not good at it, it’s not repeatable. Because even if a salesperson is good at prospecting and closing, which is very rare, they prospect, they fill their pipeline. They have to stop prospecting because they are now busy closing. They get into this up and down cycle. It’s not a scalable, repeatable way to build a sales team or to generate leads.

Andrew: Alright, let’s go on then to the next and final point, which is, “Move to Self-Management by Using the 80/20 Rule”. So, we see now how you’re able to build up your team at Salesforce, but there was also a problem that was building up along with the team and along with the revenues. And that’s that there were too many responsibilities on you.

Aaron: Mm-hmm. Yeah, because at one point I had up to fifteen direct reports, plus I finally got a protege to be like a helpful manager. But I found after about ten, when I had ten people reporting to me that still felt like a team.

Andrew: Yeah.

Aaron: And after that it was just too many we sort of lost that feel of actually being on a team and I didn’t feel like it was working. People weren’t getting the right coaching and it just didn’t feel right. I wanted the team to be independent of me, because I didn’t want to be trapped by the team and I wanted the team to be able to depend on me but not be dependent on me.

Andrew: Yep.

Aaron: Because if they were dependent on me, I would never be able to take a break, be promoted, go on vacation, or who knows what else. I wanted it to be able to last beyond when I left.

Andrew: Yep. And so you built this out, explain what this is, and here I think this visual is going to help us understand it.

Aaron: It’s a bit. It’s a little related to the sales which is the idea of how you manage your company, your team, trickles down throughout the culture.

Andrew: Okay.

Aaron: So if you are micro-managing your people. Let’s say you’re a CEO and you micro-manage your execs, they’re going to end up at some point micro-managing their people. Or actually here’s a better example, say you’re CEO and you’re always putting the pressure on the VP of sales. All right.

Andrew: Yep.

Aaron: The board is pressuring you, VP of sales turns around to the sales people like, “Where’s those deals, come on we need to get in this month.” Sales people turn around to the customers or prospects and they do whatever they need to do to get the deals in, whether or not it’s good for the customers necessarily, or whether or not it’s good for the long-term health of the company. You know, crazy big discounts, promising custom work, all sorts of things just to get the deal in.

Andrew: Yep.

Aaron: And there’s that short-term scramble, fire-fighting, you can see companies who are always in the short-term scramble or fire-fighting mode. Or other companies that have more of an even keel long-term approach. So what I find as CEO, especially because it really starts with the CEO, but this can apply to management, which is how can you promote more of a culture of trust in helping your employees take more responsibility. You know, act as mini-CEOs because ultimately it’s more fulfilling for them, and you get better results when they can make more of their own decisions and it makes the company more scalable. Because as long as the CEO or head of sales is required, let’s just stick to sales. As long as the company sales are dependent on a CEO or frequent sales-

Andrew: Yep.

Aaron: You’re only limiting your growth. You have to be able to design the CEO or head of sales out of the sales process in order to grow.

Andrew: Okay. And it seems like one way that you did that was by breaking up the roles, those four roles that we talked about earlier-

Aaron: That makes a big difference.

Andrew: That makes a huge difference. Doing things that are repeatable makes a huge difference because if they’re repeatable people know them, they get better at them, they don’t need you. But this 80-20 principle and the way you applied it is interesting to me. That you broke your work apart into 20% important work that you had to do, and 80% distributable work that other people could do, right?

Aaron: Yeah and so, when I had a team and I was thinking, “Alright, there’s some stuff that I need to do and I want to do. And there’s a bunch of stuff I don’t want to do.” So how can I take the stuff I don’t want to do, like training new hires.

Andrew: Yep.

Aaron: Like after the 20th person I’d hired, do I want to sit down and teach him how to use Sales-Force? I don’t, but… so not only do I not want to do that, it’s not a good use of my time when I’ve got a big team, and some of the people on the team actually really enjoy helping. And-

Andrew: Okay, so then that’s part of the 80% that you distribute out to someone else and someone else then becomes responsible for that.

Aaron: Yeah. So by having someone on the team take over… actually what I did was I broke 15 people up into three sub-teams, so each sub-team of five picked their own team-lead, like a quarterback.

Andrew: Yep.

Aaron: So okay, here’s your five and you guys choose your leader. And then each sub-team leader was responsible for a few key things like bringing on new hires or training the new hires. Getting the team reporting right, coaching their own team, and so on. And it gave them a chance to exercise their leadership skills, it took some of the stuff I didn’t want to do off my plate, and they enjoyed it more because they got to be more like mini-CEO’s, but not everybody wins at that point.

Andrew: Got it. That makes sense and now you have an organization that has independent cells, lots of people get experience, and you’re not the bottleneck anymore.

Aaron: Yeah. Part of it is about letting go and not trying to control everything, which can be hard for a lot of entrepreneurs like us.

One example, and this is in the book, is how I think transparency is often the easiest place to begin. Whenever I did my monthly reports to my [Inaudible 0:00:20] seniors, I shared those with the team. I believe that most companies, when you do board meetings you should share those with the company as well.

Even at Salesforce with the sales compensation, I involve the team in designing, or updating, or reporting on their own sales compensation. What I found is by involving people in here’s the current comp, what’s working and what’s not, what should we change, how should we log it and report it and so on, it took a little more work at the beginning to involve people in feedback and so on, but it shortened everything.

It made it overall an easier process, because there weren’t surprises later for them. They knew about it up front. They were more bought into it when the comp plan changed. I didn’t have to feel like I needed to do all this work by myself off in a corner and then come back and dump it on people.

I feel like if there’s really one phrase I would leave with you about management and what works, and in sales, too, are these two words: no surprises.

Andrew: No surprises.

Aaron: No surprises.

Andrew: Predictability.

Aaron: Yeah. If there’s nothing else you remember, I’d say no surprises. Employees don’t like to be surprised, C.E.O.s don’t like to be surprised, and customers don’t like to be surprised.

Andrew: That’s a good place to end it. Before I show the book title one more time and a list of the things we’ve covered here, let me ask you this. This is a brand new or sort of brand new system for me where, I suppose, we were… Oh, suddenly we’re getting an echo. Interesting.

Aaron: Bonus.

Andrew: Bonus, right. I wonder what’s bringing it in. Anyway, what I was going to ask you was now that you’ve seen this new system, does it feel a little distracting to fool around with all the different [??] and your video and my video.

Aaron: Not so much. I’m focused mostly on the camera here.

Andrew: Okay.

Aaron: Because if I’m looking down here I probably would be annoying to the viewers. I could see if I needed to look around it might be, but it seems like it’s great. It’s working well.

Andrew: All right, great. I’m the one, though, who does need to look around a whole lot, and I hope it’s not too distracting.

I’ll ask the audience, give the audience a question. Does it seem distracting to you? I’m not talking about this echo that suddenly came in.

Why don’t I end it with this. Here is the book, “Predictable Revenue.” If you read it you will see there are no echoes in there, just clear business advice that you can use. The website is Thank you so much.

Aaron: All right, Andrew, thanks very much.

Andrew: You bet. Bye.


Master Class:
How to build relationships
(So you never have to eat alone)
Taught by Keith Ferrazzi of Never Eat Alone

Master Class: Never Eat Alone

Report Bugs


Andrew: This session is about how to build relationships and it’s lead by Keith Ferrazzi, a tech entrepreneur whose latest start-up is [Yoi] a mobile app platform that changes human behavior in the workplace. This session is based on his book “Never Eat Alone” which redefined networking today, and has been updated and now 30% of it is new. So even if you’ve read it before, this book is going to be new to you. There you see up on your screen all the big ideas that we’re going to be talking about in this session that come right out of the book. I will help facilitate, my name is Andrew Warner, I’m the founder of Mixergy, where proven founders like Keith teach. Keith Ferrazzi, thank you so much for doing this session with me.Keith: It’s my pleasure, Andrew.Andrew: I think of you as someone to whom it all comes naturally, to whom even in kindergarten people walked up and started building relationships with you and what I read in your book was because of the car that you were driven into school in, people reacted to you differently. What did they say?Keith: Well look, well I mean I grew up in Pittsburgh, my dad was an unemployed steel-worker, my mother was a cleaning lady, and they had, as many immigrant Italian families do, they had an auspicious understanding that education was my ticket out. So they got me into a very small private elementary school where, you know kids are kids, and when you’re the only one that doesn’t have affluence in the family, you certainly stand out, you get teased. I have to tell you that in an earlier stage of my life that chip on my shoulder that was established from being teased, ridiculed for my clothes I had, the car that we drove, etc. the economic situation we were in; that was my fuel, the fuel to overcome those kind of early disadvantages.However one has to recognize, and we can talk about this as we evolve into this conversation, that sometimes what got you here won’t get you there. Late in life that very fuel, that chip in the shoulder, that drive and the ambition to be successful, can actually sometimes hold you back. And we can maybe talk about that nuance as well, but no in the early stages I think one of the reasons why we were so good at being able to identify the formula, the engineering formula for deepening your network, deepening your relationships, is because it did not come naturally to me.Andrew: And by the way, this is the car, I think this is as close as we can find to it. Just a blue Nova, we’re not talking about an RV that you lived in that you were coming into school, this kind of car is what kept others from feeling like you were one of them, and that is, if I’m reading the book right, that’s what created a bit of a rift.Keith: Well, I’ll tell you. Yes and no. first of all, kids will pick anything. It could have been a beat up green Nova with rust spots, it could have been the clothes that I was wearing, it could have been my accent; but I’ll tell you what stopped me from connecting with others. And it was my assumption that I didn’t belong.

Andrew: You assuming.

Keith: The trappings of my economic situation distanced myself from others based on the teasing, but how I internalized that… one of the things I want everybody to recognize is that how you interpret the surroundings around you will define your capacity to build a relationship with somebody. By the time I got older I no longer made the assumption that I was a part of the out-group.

So all human nature and relationships deals with the in-group and the out-group. And if you feel like you’re a part of the in-group, you will be. If you act like you’re part of the in-group, you will be. If you assume that you’re a part of the in-group, you will be. And then of course you’ve got to follow the other rules, which is how do you get into the in-group through generosity, through authenticity, etc. But if you feel that you’re a part of the out-group, if you feel you don’t deserve to have that conversation with that entrepreneur, if you feel you don’t deserve to have the conversation with your boss or with that venture capitalist, then in fact that’s exactly what will be true.

Andrew: I see.

Keith: So I wouldn’t say that it was my car that stopped me from anything, it was me that stopped me from everything.

Andrew: Okay, that makes sense. So it wasn’t this, it was- here let’s bring that up. It was you, and once you got good at it, you actually were at an event with other interns when you were in school a [Deloid] event, and you met that man on the right side of the screen. Who is he and do you remember what you did at that event that separated you from the other interns and allowed you to have a better life?

Keith: Well you skipped ahead 20 years. By the time I got to Deloitte a fresh minted MBA out of Harvard Business School, I had really mastered the art of audacity. And part of that was what my father used to teach me, which is, “Never be afraid to ask, Keith, the worse thing anybody can say is no.” So the art of audacity, and the courage to push forward, even when you don’t feel like you deserve it is a critical element. And I walked up to this man and I said, “Pat,” and by the way, I didn’t know who he was etc., but I connected with this man at a summer internship.

How many of us had ever been at a conference or an event and we meet all these amazingly powerful people, we make no impression? I made an impression on Pat. And at that impression that I made we talked about his background. I talked about mine. We talked about the fact that we were both from immigrant Italian families. And again it didn’t matter that I had that particular thing to connect with him around. I admired him, and I spoke of how I had admired him, and I asked about his pathway.

And when I found his pathway was something that I even additionally admired, which is overcoming adversity, then I delved more into that and through that connection I stuck around by the way and said, “Hey, do you have any time afterward? I’d love to grab a drink with you and your partners.” And he accepted that invitation. And so once more, another piece of audacity other than reaching up to him at the beginning. And then we hung out, and I was authentically me. I was a brash, fun kid that he connected with.

Well, spin ahead a year later, and Pat Waconto [SP] and I were talking and they’ve given me an offer to join the firm. A formal offer. What I asked Pat was, “I’ll accept the offer, sure, if in fact you give me one or two dinners a year, for as long as I’m here, just with you.” Because what I realize early on is that my success at Deloitte, and anywhere in this world, our success as entrepreneurs in the bay area is not just the success of our ideas, or even on our engineering competency or the team that we create. It’s going to be the success of our access. The success of our capacity to influence. And influence, and the permission to influence comes though the relationship. I knew that if I had a relationship with Pat Waconto [SP], that was deep and authentic that I would have a better career. Full stop.

If you have a deeper, more authentic relationship with venture capitalists, with future members of your team who are other possible entrepreneurs, engineers, super star designers, product specialists, all of those things that we all know we care. What we’re doing is our building for our future when we have goals in our life, I’m suggesting that you begin to add to that goal something that I call a people plan. And Pat Waconto [SP], while I was at Deloitte, was at the pinnacle of that people plan. So I asked him for these dinners, and instead of just asking for a raise, I wanted access. And I got it. And I joined the firm, and I became one of the youngest partners ever elected at the company.

I had a fast, accelerated path to being the chief marketing officer of Deloitte, and ultimately that was a springboard that helped me go on to have a very stellar career, chief marketing officer at Starwood Hotels, an entrepreneurial CEO for one of Michael Milkin’s companies on the west coast. Which allowed me to start my own firm, and etc., etc. And to this very day, it’s that people plan that guides my success, including my most recent launch of a new SaaS company.

Andrew: We’re going to talk about the people plan and how it impacted you and how people in the audience can do that for themselves. We’ve got a full outline here of ideas that we’re going to cover form the book. The first one is: Host a dinner that features an anchor tenant, and so, I actually looked online and I saw that you have incredible parties. And this is a photo of your 40th party.

Recognize that? Where you invited on a capella group from Yale, I think it was the oldest one in the country to come and perform. There is a stunning view of the event from outside. It’s inspiring, and at the same time it’s a little bit intimidating, because I can see someone in our audience listening, and saying to themselves, “I don’t have this kind of a set-up. I’m not a chef, I can’t cook. I can’t hire a chef. I need to still do this?” And, well, maybe do they? Do they still need to do it, even if they can’t put this whole set-up together?

Keith: Well, look. Everybody needs to find their own authentic way to accelerate and deepen relationships. I happen to believe that the art of breaking bread, over a table or a fire in the olden days. Telling stories. Curating what we call, accelerating intimacy. Accelerating connection. I remember years ago I had an accountant, young man by the name of Mark Ramsey. Mark, I think is back in New York or in Texas. I forget where he is now. Mark was similarly, even when I was younger I spent extra money to do these dinner parties, even more than I perhaps had. Mark said, well I can never possibly do that. I’ve got a single bedroom, small studio.

I said, Mark don’t be silly. It’s the act of the invitation that’s powerful. It’s the group that you’re curating that’s powerful. Go get your single bedroom studio whatever it is and take a piece of plywood and convert the coffee table into a dining table. Throw a table cloth on top of it. Go downstairs and get some rotisserie chicken which, I swear to God, from the grocery store. No one will know that you didn’t have a chef. I don’t care if it’s don’t care if it’s box wine put it in a craft and have a dinner party.

What matters is that people are stepping over the threshold of your home. There are certain acts that accelerate the connection of humans: the act of inviting somebody into your home, the act of breaking bread together, the act of storytelling, and the act of letting your own guard enough to tell another individual about what’s really going on in your life. I indeed made an art of the dinner party, but that’s not the point. It’s not about the dinner party.

It’s about the act of authenticity and accelerated intimacy through being generous with your soul and yourself. That’s not easy for everybody and I know that there are a number of introverts watching this conversation occur and you’re sitting there thinking, you know, stapling your tongue would be perhaps more exciting than and more rewarding than what I’m proposing.

Look the book has a lot of examples and ideas on how to accelerate relationships. I would recommend that you slowly and with the comfort of your time, go through the whole thing and figure out where you start. You start where things are fun. If this is an idea, great. If asking somebody for drinks down at the pub is your idea, great. If going to a workout with somebody is what you’re going to suggest, that’s great, or a run, or a cup of coffee at the local Starbucks. I don’t care what it is, but the act of connecting with others is what matters. We’ll talk a little bit more about what’s more important, which is how do you build your own vulnerability and authenticity so that people want to connect.

Andrew: Oh, we’re definitely going to talk about that.

Keith: The stories we’re going to be telling here is how do you create an environment around yourself that invites people in to build a relationship with you? Then, when you have worked on that for yourself, the answer is who? Who are you going to be inviting in? I’m asking you to be much more strategic about the identification of the individuals.

Years ago when I started Ferrazzi Greenlight the coaching, consulting, professional services arm of my organization, which still is a thriving successful company today serving most of the high-tech companies in your corridor from Cisco to Intel to you name it up there. What we recognized was. . . One year I was giving a very similar talk to this at Bill Gates’ CEO conference and the night before the speech that I was giving, I was sitting at his table as a lot of the speakers were and I asked him a simple question, who are the 500 most important people to the growth of Microsoft. Ask yourself that as an entrepreneur. Ask yourself that as a young careerist.

Andrew: So, who are the 500 most important for me or for the person listening to us in their career and we should be able to identify them. I want to get into how to create a plan for getting to them, but this point is so important, the one about hosting dinners and having people together. You’re the one who inspired me to do it. I’ve been doing dinners now for years because I read your book the first time it came out.

There are a couple of things that I want to emphasize about the process before we go on because this would have been so important to me when I first discovered the book. First is, you do say go out and buy rotisserie chicken or you gave an example of someone else who just made homemade chili which is a lot easier to make than you expect. Have people over no matter what your place is like even if there isn’t a dining room table there already. You gave an example of how to do it. You also talk about the anchor tenant and I don’t want to overlook that. You were Mark’s anchor tenant. What is an anchor tenant and how do we use that?

Keith: So, here’s the assumption all of us have to make, nobody wants to have dinner with us. Let’s make that assumption for a second. Now, what you need to do is build a group of people that people do want to have dinner with. I still think of it that way. I mean despite the fact that I suspect that there are people who want to have dinner with me, I still always ask myself who’s the anchor tenant to this dinner?

So I’ve got a dinner coming up this Friday, I do a dinner party every Friday at my home, anywhere from 16-30 people, and I do a dinner party somewhere else in the world every week as well where I happen to be traveling. But the event that I happen to have this week I had built it around one person, so there was somebody that I invited who I felt would be really interesting and I thought the connection with this was the CEO of Farmers Insurance, actually. A really wonderful guy I had met at somebody else’s dinner party and I explained to him that I love to do these dinner parties. And I said, “Hey would you like to come?” and once he said yes, then I found a date that he could come. I didn’t want until he could come to a date that I had, I found a date that he could come.

Andrew: Okay.

Keith: And then I reached out to 20 other individuals and invited them to a dinner. And I reach out to them in sets of five. So the first five I reached out to were individuals that I said, “Hey would you like to come to dinner at my home? I’ve got so-and-so coming.” And of those individuals who came, then the next set of invites I said, “Hey, would you like to come to my home? I now have the original individuals and these two others who confirmed coming.” And by the time you get to the end, you save the ones that you’re not sure that they’d want to make it, you save those to the very end. Because now what you’ve got is eight people who they might want to have dinner with.

Andrew: I see.

Keith: Think to yourself. Right?

Andrew: Yeah.

Keith: And in the early stages, shit I did this. In the early stages I thought it was a big deal that a lawyer was at my damn table. I mean you’ve got to remember, I’ve been doing this since I was a kid. I did these when I was in high-school and I said to my parents, let’s do a dinner, and the most successful person that I could think of that I wanted to have at my table was a lawyer. Right? And so I invited a lawyer, my fifth grade English teacher, I mean whoever else-

Andrew: Really?

Keith: Yeah.

Andrew: Wow.

Keith: Literally, in fact, I wasn’t even in high-school I was in fifth grade when I thought of this idea. And I’ve always thought of the first thing is don’t assume anybody wants to have dinner with you, find the first person that you can get the hook, the anchor tenant, which is you know the idea of any time you’re building a construction center for retail you’ve got the anchor tenant first.

Andrew: Right. And then all the other shops around, want to be close to him. There’s one other thing, there’s so much else that we need to cover but I’ve got to ask you one last question about this section. The one thing that I didn’t have the guts to do that you mention in your book is have people for dinner, and then have another group of people come over for drinks. I totally understand how the energy level towards the end starts to drop, some people think they have to go home or want to just take it easy.

I want to bring other people in just for drinks, I don’t have the guts to tell them, “You didn’t make the cut for dinner but you can come for drinks.” How do I position it in a way that makes them fell included, valued at the end, and then I have that energy later on in the event where people come just for drinks after dinner?

Keith: Well I have, there’s three waves at my dinners, right? I could invite friends of mine over for cocktails and let them know that there’s not seating for dinner. And that I usually do as a gift, so once I have a group of people for dinner I ask myself, “Who would benefit from meeting this person and this person?” And I’d reach into my network and I’d reach out and say, “Hey, I’ve got so-and-so coming to a dinner this Friday, I apologize I only have space for 16 at the table inside.”

So basically when I think about my dinner my table inside seats 16. Alright, and so if I wanted to do a bigger dinner, I could seat up to a 150 and have at my home. At the long table that you saw, there was like 50. That indoor/outdoor table that I’ve got.

Andrew: Yep.

Keith: But the 16 is what I can control. 16 is one table, inside, one table-conversation. Some people’s [Joe Hoey window] and I’m not sure if that’s one of the things we’re going to talk about or not, some people’s comfort level with other individuals, might have a table for four that you’re comfortable with. And that’s your sit-down dinner that you control. And that’s what we do.

Andrew: Okay. That part I got, but what about the drinks afterward where you’re telling people, “You weren’t here for the dinner that-”

Keith: Just say to people, “That’s my dinner assignment. I only have four spots.”

Andrew: Ah, I see. That if it is limited, if that’s all the space you have, and you’re already organizing the dinner, you still want to see them even though you don’t have space.

Keith: That’s it. I do dinners for four, but I think you would love to meet these folks, come on over for drinks.

Andrew: Gotcha.

Keith: It’s just as easy as that.

Andrew: Okay. All right. Onto the next big idea that I want us to cover, which is to get specific about what you want. That’s what you were starting to talk to us about, and I was really moved by how in your book you talk about taking a ten-day [Vin-Yasa] meditation retreat where you got really clear on what you wanted out of your life, and as a result of that clarity, you started focusing your meetings and calls and conferences on the goals that you set out for yourself, and all of that led to you getting to work with this man, with Mike Ovitz, guy who’s there’s so many articles, I didn’t know which one to pick. So I just picked a bunch of them and put them on there. Incredible person. How specific do we get about our goals and then who we’re going to meet and conferences that we go to to get to those goals?

Keith: I don’t mean to be awkward. I did not work with Mike Ovitz. Mike Milken.

Andrew: Oh, I thought that as a result, you got connected to Mike Ovitz and Hapgee [SP] to run Yaya.

Keith: Michael Milken.

Andrew: Michael Milkin. And I got Mike Ovitz. All right. So I need to find a bunch of other articles. I can’t believe I did that.

Keith: That’s quite all right.

Andrew: All right. So as a result of that, you got to meet Michael Milken.

Keith: Yeah. Let’s go back to the previous life for a second and focus on what’s important here.

Andrew: Okay.

Keith: It’s getting specific to what you are trying to achieve. So, listen, I use all different forms of goal setting for myself. I had a men’s support group that I go to sometimes three times a week, that I tap into here in Los Angeles, that we really won’t let each other fail. I don’t know if any of you are in YPO. There’s these things called the forums.

I feel that my second book, “Who’s Got Your Back,” very much focuses on needing to have a strong group of people around you that won’t let you fail. And that you can spar with, wrestle with, set terms and direction and vision with, etc. The other way is I look inside of myself instead of looking to others. I meditate. The policy of meditation is a very powerful tool that I use.

But whatever you do to set your goal setting, the next question I want you to ask yourself is, after you know where you want to go and what you want to go, then ask yourself who. Who, who, who. I want you to develop the most important list of individuals that you want to build relationships with. Michael Milken was on my list.

And I knew that if somebody was on my list, eventually, by putting that list out there verbally to my closest associates, by constantly being aware by writing it down, that you pick up clues on who might know who, etc. It’s quite remarkable how you will find your way into the presence of these individuals. But your people plan is so important. So if you join a new company, or if you’re a tech entrepreneur, better have DCs on your list.

Andrew: Mm-hmm.

Keith: Better have high potential talent on your list. You can have recruiters on your list. And these are folks that are connectors. Right. You need to make sure that you have strategic partners on your list. In my world, I mean, it was amazing.

When I raised the seed capital for my most recent company, I did it in two days. Two days. And that was a million five in seed capital. And it’s not a surprise that the person who’s going to be leading my series A is a classmate of mine from business school. So these are things and we’ll be talking about build your relationships before you need them which is the next step.

But the step before that is get clarity around who specifically you want to build relationships with. Now listen, do not put people like Bill Gates on your list and the Queen of England and assume that that’s all you’re going to do is aspirational contacts. Nothing wrong with aspirational contacts. Build your way up for them.

Balance your list so that they’re a combination of individuals that you can access today, people you already know that you’re looking to deepen relationships with, and instead, you know, at Never-Eat-Alone, we talk about a system that you put into place where you have A, B and C level priorities. Your A level priorities you’re going to put more time and effort to. Bs and Cs retrospectively.

Andrew: Mm-hmm.

Keith: And only label the strength of the relationship. If you’ve got a person like Mike Milken as a target individual on your list to build a relationship with, he’s starts out as a zero level relational quality because you don’t know him yet. And you can move that person from a zero to a one which means you get introduced to a two, which is an acquaintance and a three which is a real connected link.

And that system is important. What’s interesting is many of you are building these kinds of apps, you’re welcome to talk tome as an adviser. You’re welcome to talk to me as an investor. But there are no great systems out there today, not extraordinary systems, that help you manage your network in this way. There is an immense business opportunity in this space and eventually I’ll get to it. . . . [??] . . . reach out.

Andrew: Is that what you’re building now? Is that what you’re building now with your new company?

Keith: No. What we’re building now is an enterprise platform for human behavior change in the workplace. Which I can speak more of. My primary professional services firm, Ferrazzi Greenlight, is doing things like managing the behavior transformation and culture change at places like General Motors, and major corporations in this world. This is a technology platform to advance that.

Andrew: I see. Okay. On to the next big idea, which is what you brought up. You say, “Build your network before you need it,” and you certainly did that. I noticed that, all right tell me if I got this one right. Let me see if I can bring them up. This is a story from you from the year 2000 and the new job that you got. And along with it I read as I scrolled through about a guy named, where is that in the doc, Tad Smith. And Tad Smith isn’t a guy that you just happen to end up with in an article and at the same company. How do you know Tad?

Keith: Businesses. So Tad was one of those rare individuals that when you met him… first of all Tad and I both said that we probably both rubbed each other the wrong way when we first met. But Tad is a special guy. You know, he is a great business man. Today he is running the, I’m trying to remember the name of the big physical entertainment company. I’m just blanking right now. But Tad was always one of those special individuals. It’s amazing we go to business school, or we go to graduate school, whatever. We see these people who we knew were impressive then, and for some reason we didn’t proactively connect or stay in touch. It’s ridiculous.

I’ve always identified the most interesting people that I’ve ever met and then I’ve stayed in touch. I mean Fareed Zakaria was a senior when I was a freshman at Yale. And you guys see Fareed Zakaria on television today. You know, I knew back then that Fareed was on his way probably to be the Secretary of State. I consider him my era’s Kissinger. He is a brilliant man. Tad Smith was one of those brilliant amazing validatious [SP] individuals that I connected with. And that’s my desire. If any of you out there listening to this think of yourself as one of the most extraordinary people in the world but nobody has noticed it, find a way into my path one day please.

Andrew: What is a good way to get into your path?

Keith: Social media.

Andrew: Okay.

Keith: Follow me on Twitter. Let’s get connected on Facebook and LinkedIn. You know, I’m basically out there on everything. I do have an organization that manages my social media.

Andrew: Does email get directly to you if someone were to send you a direct email. Find your email and send it to you.

Keith: Yeah, absolutely. It’s not very difficult. You can just go on the web. Every one of our emails get read. What I want to say to you is you can just go to or or But listen, I’ll tell you how you can get to me. Develop currency. Like, create a story. Why do I want to spend time with you? And I don’t mean to be a jackass here. And I’m not suggestion I’m somebody worthy of you spending time with.

Andrew: But I get what you’re saying. I did focus a little too much on how do we actually get your real email address so we can send you a message. But that is not the important part. The important part is how do we make it valuable for you to pay attention to our message and to want to respond and connect.

Keith: So what you need to do is once you identify 25 most important people you want to build better relationships with, your next question is very simple. How do I serve them? How do I serve them? And there is three layers of service that we bring to people. The first layer of service is are you the kind of person I would want to hang around. Maybe you’re not. That’s fine. Maybe you’re an introvert. Maybe you’re a jackass. Maybe you’re whatever. I have plenty of dear friends of mine that are introverts and jackasses. What we call universal currency isn’t the only reason. But I do have to say that I’ve got a lot of friends who have no currency other than being extraordinarily wonderful people that’ll stick around.

So universal currency can carry the day to some extent. The next level is professional currency. So if you wanted to identify what professional currency do you have for somebody. Listen, like everybody else I’m out there looking for that unicorn called an extraordinary UXUI designer. That product design person that has a sense of emotional connection through design in a mobile application that can blow people away. I need one of those. You want to help me find one? Are you one of those? Do you want to volunteer five hours of your time to look at my work in our company and see whether or not there is something you can make advice to me? That’s currency. Why wouldn’t I take advantage of the opportunity to do that for you?

If you want to say to me, “Keith you’re hiring extraordinary people in the bay area for your new company. I want to curate a dinner and I don’t even friggin’ pay for it.” If you want to curate a dinner with the smartest individuals, that will blow away the world in mobile SAS [SP] platforms, into the future. And you want to do the research and identify the individuals, and invite them to a dinner and use me as a-

Andrew: Anchor tenant?

Keith: Anchor tenant, I’ll be there! Like that’s currency. You’re doing the hard work to build my network. Right? Now at the top, you can also deal with what’s called personal currency. If you research on me you would l realize that I care deeply about foster care. I have two foster sons. And I’m trying to reinvent the foster care system in America. It’s 80% of the US prison population came from foster care. I’ve got some blow away ideas there.

One of which is, imagine this for a second, and it’s a crazy idea. That here you are, out there, and anybody I hear can fulfill this. Imagine creating a marketplace for adoption for kids. So imagine foster kids who are dying for adoption and may have been passed up, that they can put themselves out on an open marketplace and say, “I am that kid worthy of your adoption, and let me tell you why.” And they could even have a program where the kids can put them out there, and their foster parents could rate them relative to whether they’re actually good kids. Where they could prove and market themselves, and they could sell themselves to future adoptive families. So that folks like myself, who would love to adopt amazingly talented young kids that are lost in the foster care system, could come along and find foster children. I mean that’s a crazy idea that I’ve had, and haven’t had the time to do it.

Anybody want to build something like that, Give me a ring. So that’s the kind of stuff that if you went online and saw my foundation’s commitment to fixing foster care, you can develop currency. Figure out what you can do to serve others, and then you’ll get their attention.

Andrew: I see, that makes a lot more sense than what I was going after. Which is, it’s so tempting, you know Keith, to say, “How do I get your e-mail address? Or what social network are you really on?” It’s a lot more meaningful to do what you just showed us, which is to say, “What does he care about that I can help with?” And then build a relationship off of that. All right, on to the next big idea.

Boy, we have a lot here to go. I wonder if maybe we pulled too many, but we can make it work. Number four: if you want something, be audacious and ask about it. We talked a little bit about this, about how you went to this school, and look at how beautiful that school is. But it’s not like you came from a family that was flush with cash, it’s was because of this man you got into that school. Who is that man next to you and what did he do that allowed you to go to that school that helped change your life?

Keith: Well that’s my old man. That’s my dad. And Dad introduced me to the headmaster of that school. And then Dad, and the way that happened was, Dad went into the CEO of the, my Dad was a construction worker, tow motor operator, he went into the CEO of the company that he worked for. Because he did his research and found out that that guy was on the board of directors of that school, and he walked in and he said, “Mr. McKenna, I’ve got an amazingly bright kid, but he’s lost in public school. I want him to go to this school. I know that no poor kids go to this school. Will you meet him? I want him to not have to work as hard as I do.” And his boss’ boss, the CEO of the company met with me, got me introduced to the headmaster, got me a full scholarship to the school.

Andrew: Wow.

Keith: Look, I mean, here’s the thing that I want you all of you to think about. And this is what I said earlier. Don’t ever be afraid to ask, the worst anybody can ever say is no. I promise you, if you’re a coward, you’ll get cowardly results. Grow some courage. And get out there, and ask for what you want.

Now mind you, people won’t give it to you if you don’t have some currency. My father had the amazing currency of a humble father who cared deeply about his son, and probably the vulnerability of that moment in front of his CEO, gave that CEO a good feeling about himself. You can’t always assume you’re going to tug onto the heartstrings. And then make the audacious ask.

Sometimes the audacious ask is the ability to help. Going to somebody and saying, “I would like to give you all my weekends for the next three months. To serve your company, if I could just be a part of it and be given the opportunity to get to know you and learn from you. That’s an audacious task. Those are the kinds of things that you can do but it takes you growing some courage.

Andrew: An incredible man and incredible thing that he was able to do for you. You know I’m wondering what is it that you said to the CEO of the school that encouraged him to let you in?

Keith: I have no idea. I remember things.

Andrew: He never met you, and he says-

Keith: I was just a little baby, I was this little kid, right? Yeah. It was not what I said it was what my father said. And that was the audacious aspect.

Andrew: All right. Onto the next one which is to do your research, and if you do you’ll be able to make more meaningful connections with people.

Keith: So I came back to the point that we’re making.

Andrew: Yeah.

Keith: Oh yeah, John.

Andrew: Yeah. This is John Pepper, excuse me I couldn’t think of his last name for a moment there, he was the CEO of Proctor and Gamble, you walked up to him and talked to him and it wasn’t just about Proctor and Gamble. And the reason that you were able to connect with him on a personal level and talk to him about the school that you both went to, was you did your research. What kind of research do you do that allows you to get to know where you could connect with someone?

Keith: Listen, I am so pissed off at this young generation. The tools that you have available to you is amazing. I mean we had card catalogs, not Google. Right? Let alone all of the amazing research that you can do around LinkedIn and there’s a wonderful company out of New York called [Relsie] that talks about how to find mutual connections among the most powerful people in the world. I mean my buddy, ‘Anchor Jane’, has got a new technology called ‘Hooman’.

I mean, there’s so many really cool things being created all the time, another Nick’s got [Here on Biz]. The research ability to find the details of somebody. But here’s another thing, you’re not always trying to find shared passions. You’re trying to find ways to share your passion. Let me explain that. So yeah, I happen to have a mutual school under-graduate education with John Pepper. But the ability to do research on somebody and find ways that you admire them authentically, and then do research on people to find ways to serve them again, right? The research you’re doing is ‘how do I serve’.

One way to serve is to find the things that you might have in common, things that you admire, things that you want to say that are flattering when you meet them authentically. But that’s only the first level. Then, professionally and personally, how do you serve them? Who can you introduce them to? What are they doing, where is their passion and how do you make them more successful? That’s the basis of your research. Bust your ass, and find ways to server people through your research.

Andrew: How do we avoid this, I’ve noticed that there are some people online who just want to help as a way of connecting, and they will send me an email, they’ll send me an email and say, “Andrew, I want to do whatever I can, can I come over to the office and help out, can I send out emails on your behalf, can I do this, can I do that?” The danger of being so available and so eager to help is that you seem too needy, you seem to obsequious. How do you do that help, without seeming needy?

Keith: Well let me ask, if somebody reaches out to you and says, “I’d like to be of service in any way and here are some ideas.” Is that your reaction? Have you reacted, “Boy this person seems needy, I don’t want to get to know them.” Is that how you’ve reacted?

Andrew: No, I guess when you put it that way, no it isn’t. But I do worry that if I were to offer people help and just email them and say, “Hey I saw that you were having this issue, can I be the person to come in and help?” that I might seem a little too needy, a little, too over-eager.

Keith: I was just asking if you feel that for yourself, I wouldn’t, I mean. The person who was running my foundation until very recently got to know me by volunteering in my foundation. I’ve got interns and young friends who have become MT’s of mine and almost little brothers and sisters of mine, who I take under my wing because they offered to volunteer. I don’t think so, I don’t know, I haven’t met anybody yet where they’re… Look, I have met people who have volunteered, I’ve given them the opportunity to be of service, and they sucked. And I don’t want their service, but that’s different, I’m not sure that the outreach is interpreted that way.

Andrew: All right, fair enough. Maybe I’m getting worried about things that aren’t going to happen and it’s keeping me from being helpful. Just to close a loop on that story, because of that connection that you made with him on a shared interest he ended up helping you by making connections when you were running a tech-company Yiya [SP], right?

Keith: Yes. John Pepper you mean? John’s been . . .

Andrew: Yes. John Pepper. Excuse me.

Keith: John’s had a lifetime of generosity and a great friendship and a mentor of mine and such wisdom and what a joy to be with.

Andrew: All right. The next big point that I want to cover is to master the art of small talk by being authentic and vulnerable. I so hate conversations at events where people just say what do you do for a living and they do nothing but tell you what they do for a living. And so you had an event, a dinner party that you went to. You were sitting next to a woman named Sherrie. Do you remember what you said to her that allowed you to have that open conversation and had something to do . . .

Keith: Yes. I get it. I’ve got to remember. It was a dinner in Minneapolis, I think, and there was a whole set of individuals and I’d just broken up with a really [??] breakup after a two year relationship and I just asked Sherrie “Have you ever had your heart broken” or something like that. I forgot what exact conversation I had but it turned into a table of fourteen of us sharing our stories of love and challenge with that and break-ups and it was very powerful. Sherrie was suffering. Less than a year away from I believe a very similar situation for herself.

Look, I hate small talk. Who gives a damn? It’s Los Angeles. The weather’s lovely. Let’s not talk about it. Let’s talk about what matters. I advise people that if they go to an event they should do two things. We’ve already talked about one, generosity. Find a way to help and find a way to care. The way you find a way to care is to be curious.

Now you can’t be curious by interrogating somebody because by interrogating somebody, if you are not a journalist interviewing them, you don’t have that right. Your job perhaps is to share some of yourself which gives somebody the safety to share themselves. So some of the time it starts with me telling a story. I have two foster kids. I always have something vulnerable to share about a struggle I’m having with my boys. So I can always go there. I can talk about my relationship. I can talk about “listen, we’re all entrepreneurs, folks. Walking around pretending like everything’s great is bullshit. The ability to talk about how difficult it is to recruit the right talent, maintain the right talent . . .

Andrew: Does that weaken your power when people look to you as the CEO, as an authority, as the person who is running the show who they might want to partner with or maybe work for. If you were at a dinner party and saying “you know what, I can’t make my relationship work out or I’m having this trouble at work”. Doesn’t that vulnerability make you look weak to other people?

Keith: Vulnerability is courageous, not weak. I’m not talking about pathetic.

Andrew: You’re not saying cry at the dinner table.

Keith: I’ve cried at plenty of dinner tables.

Andrew: Really? So you are saying cry at the dinner table. So how do you do that without seeming weak? Without having that be the story that people tell?

Keith: I’m not saying I walk into a dinner table and cry.

Andrew: I see.

Keith: Let me step back.

Andrew: Okay.

Keith: The key is to create an environment that lets people be people. And if you are courageous enough to be the first human at the table who talks about what you really have going on the context with which you bring it up, because I’ve got a bad relationship at a point of time in my life, does not make me a bad business man. It doesn’t make me a bad leader. Because I’ve got an employee who is a challenge to me doesn’t make me a pathetic individual nor an individual unworthy of [investment].

There’s not a single one of us who hasn’t experienced challenges and those challenges make us human. Our courage to share the things that we’ve got going on in our lives and invite people in to do the same is an art form that I recognize in that you don’t lead with “Let me tell you how vulnerable I am”. You grow the trust and you grow the safety in a conversation. I’m just suggesting you go deep quicker and you have to figure out for yourself what’s comfortable.

Some of you would never feel comfortable sharing intimately or deeply in a first meeting with somebody. For some people it takes ten meetings. I am quite confident with who I am and my capability of walking into a room courageously and opening up a dialogue that is much richer and deeper than most people can. But that’s my art-form. Yours will be different. And you’ll navigate yourself to it, but what I tell you is this.

Nobody will trust you, until they can feel that you’re also human. Nobody will be vulnerable with you and share what their real needs are in this world, until they feel that you’re not judging them. And one of the litmus test for whether or not you’re going to judge them is whether they’ve experienced you as a real human.

Empathy needs to be created in advance of the relationship solidified. And empathy is about shared tribalism. A sense of being connected in some way. And the best way we’re all connected, is that we all struggle. And another way that we connect is that we all share passions and excitements. We are more connected around our struggles than around our passions and our excitements, but nothing really connects you around the frigging weather, or small talk.

So my recommendation is, find how good you are, and comfortable you are at going deeper quicker. Asking people about their kids, asking people about their weekends, asking people about their hobbies. Are a shitload better than asking them about their golf game or just staying on sports conversations. Those are early level connectors. There are deeper ones, gain some courage.

Andrew: All right. And I’m pushing back just to play devil’s advocate on behalf of the audience, but I have to tell you that I do that too and people push back on me sometimes. Or they say that maybe I get a little too vulnerable but, it bonds me so quickly with people, and it bonds them to me. And we understand each other so much more. I had a few people here for Scotch Night last night, and we talked about break ups, we talked about first time that people had sex, we talked about those messy parts of our lives that have nothing to do with business.

There’s no sale that happens as a result of it, but there’s a deep connection that happens because we got that kind of open. And I’m a huge advocate of it, and maybe it’s because I do feel comfortable with that. I do have enough practice with it to realize, people aren’t going to hate me or feel too exposed. Or that I’m too exposed for them.

Keith: I’m going to make one suggestion, and that’s if you can’t imagine any of what I’m talking about as being possible, then start to go to therapy. Because your ability to connect with yourself, your feelings, your issues radical accelerate your ability to connect with others. If you have the good fortune of being an addict of some sort, and there’s actually a 12 step program out there for you, go. I recently, and I’m joking about the good fortune of being an addict, but the 12-Step methodology is very powerful.

When I wrote my book, “Who’s Got Your Back,” we studied the art of peer-to-peer support. And how critical that is in advancing ourselves as humans. And ideally you bring that methodology into your team. If you’re a team leader, go buy Who’s Got Your Back after you finish Never Eat Alone. Because Never Eat Alone talks about building that network, Who’s Got Your Back talks about building that group around you that wont let you fail. Including your own team, in the work place. And we studied 12-Step programs. I wrote an article on HBR that’s in the August issue, 2014, on how 12-Step programs methodology can be used in our business workplace. [??] bad behaviors, and changing culture. There are lot of places to go out there, to get grounded and to look internally, and be a better you so that you can connect externally. Go on that journey.

Andrew: All right. On to the next big point. Make a deep connection by helping someone with health, wealth and children. You did that with Jack Valenti. There he is, confidant of presidents, stars. You helped him with his son, and then you followed up with him by checking in just a little while later saying, “Hey, I helped you with your son. Wanted to see how he was doing.” And he stopped everything to have a conversation with you, because you helped him with family.

Keith: So this gets, I think we covered this point pretty strongly.

Andrew: Yeah.

Keith: No matter who you want to get to know, find a way to serve them. Universally, professionally and personally, help health, wealth and children. Children being, health being two ways that you can serve somebody personally. I learned that from Mike Milkin, and that was his phrase, learn how to help somebody through health, wealth and children.

But the key is to be as generous as deeply and as richly as you can. That gives you permission to get to know somebody better. Once you get to know somebody better you learn more about them, you can find ways to serve them more. Once you serve them more they’ll give you more time to get to know them, once you get to know them better you can serve them more. And it’s a lifetime pursuit of being of service and deepening relationships.

Andrew: Cool, on to the next point, which we kind of covered but also there’s a story in here that I think is important for us to talk about, which is you say get out there, connect with people, you tell the story in your book of this man, there he is. His name is Hank Birnbaum he was the CEO of High Sierra Small Bag Manufacturer, called you up over the phone, asked for help, you worked with him, and you started making connections on his behalf, and as a result of that you sent a few notes to a fast company, and you got them to cover him, but you pushed him to do this on his own.

The reason I brought this up is, and he did end up doing it on his own by the way, and he did very well with his company as people can see, where is that? Look I’m bouncing all around. The company was bought for 110 million dollars. The reason I wanted to bring up Hank’s story is to ask you is it possible that if we’re not especially good at this that we could just say I’m going to find someone who’s like Keith Ferrazzi, maybe it’s a smaller Keith Ferrazzi, someone who’s just getting going but has a talent for it. I’ll ask them to make the connections for me while I focus on the technology and the other parts of the business, can this be outsourced or delegated?

Keith: Well I mean we have a professional services firm that helps CEO’s of the most prominent institutions of the world we you know served. I would say in some form or fashion we have served the Lion’s share of the fortune 500 companies and their CEO’s. So of course you can outsource elements of this, but paying it forward and helping others helps enrich the network. You can I think ultimately instead of outsourcing you really should insource this. Even the companies that we serve we ultimately help them think about how they’re building a system internally.

One of the largest telecomm providers is a recent new customer of our professional services firm, and again our intention is to have them bring this in house, how do you figure out who the 1,000 most important people are to the good of the business, and then through all of the touch points make those connections? So I think this is something that is what we do. I mean I’ve got a marketing department at my organization that a big chunk of it is what we call high touch marketing, and we go I think you should bring it in house.

Andrew: Okay, but bring it in house does that mean that we as the founders have to do it ourselves too, or is it something that we can say someone in the company. We do it in house, we’re really good at building relationships, but Steve over there is the guy who’s a natural connector, he’s the guy who’s doing it?

Keith: Yes, and yes. It’s very difficult for the founder to outsource totally the connectivity on the vision of the company. I’ve absolutely seen partnerships where one partner is the Mr. Outside, and the other one’s Mr. Inside. So that’s absolutely possible, but I want to make , recognize whoever is the person building the network on behalf of the company is accruing the Lion’s share of the value personally.

So if you have the key the growth of the relationships to your partner, and your partner exits the company you’ve not curated the relationships, because they’ve not been curating relationships with your company they curate relationships with themselves, and then leverage that for the company, and if they walk out the door it’s still there relationships, which you might be able to accrue if they’re clients, but if they’re just relationships they’re not your companies relationships. Companies don’t have relationships only people do.

Andrew: All right final point is to become king of the content and grow your following online this is one of the new ideas from the book, the internet and social media weren’t nearly as big when you first wrote the book as they are today, how do we use content creation as a way of building relationships?

Keith: So, I just went and got the book, so this is the new book.

Andrew: Yeah.

Keith: The green starburst on it, make sure if you’re getting it you get this one. It’s been 40% rewritten, and one of the things we’ve recognized is that your network starts in social media. Your identification of lets…in social media you can have 5,000 people you want to build better relationships with, and your outer perimeter, all of broad ties, loose ties you can connect and stay with them online until you decide to migrate them closer to the epicenter where you might migrate them into a physical relationship, but the idea that you can follow people on twitter, retweet them, connect with them, share your content, establish a brand through blogs, et cetera, All of the things that you can do to establish a following, as you see. I mean, look at all of the YouTube sensations, the Twitter sensations. People have gained really extraordinary followings. They came from nowhere. They have established a following, and those following are just people. People are not any less people when they following you online.

Andrew: What do you do to make that connection more personal and bring the online relationship off line so you can see each other in person and have more personal, more connected conversations

Keith: So if you’ve got a target list and that person is then connected with you on, say, LinkedIn or Facebook or something, then reaching out to them and connecting them to a blog you’ve written through a link and see if they follow to that link. Then following them on Twitter, retweeting them is a generous act, taking their published content, and reaching out and sending it to others. Ultimately if you have a blog that’s established sufficiently, you could reach out to them and ask for a quote from that blog.

Now all of a sudden you’re in a real email conversation. You might actually move it to email at that stage. And if you’re local to them, you might ask whether or not a cup of coffee is reasonable and talk about other opportunities that you could advance their content or their agenda if you’ve done your homework and you’ve figured out what they want. What could you do to be of service to them?

So the generosity doesn’t only have to kick in when you’re face to face. It can kick in virtual, same set of rules.

Andrew: All right. One of the things I do, by the way, because I do interviews I invite people who I have interviewed to dinner at my house. I’m telling you I take that advice so directly and seeing them in person and having them over at my house is a way of connecting. Even if I don’t see them for the next five years that connection is there and we reconnect like old friends. [??]

Keith: I would hope so. After the physical dinner you’ve moved the relationship score from a zero to a one to a two, right?

Andrew: Yeah.

Keith: And then how do you move it from a two to a three? You might be able to do that through email communications. You might be able to do that through online communications by continuing to go back into the social media world and using that as the mechanism by which you’re going to move the relationship forward once you’ve got some form of a connection. You can go from zero to a three and never have met them physically.

Andrew: I guess I’m putting a lot of emphasis on the in-person. I feel like no one has a deep connection to me or a three as you say unless I’ve seen them in person and you’re saying that’s not necessarily true. It can all happen online.

Keith: I think increasingly with video and other forms of connectivity that we’re going to be moving into, I do believe that to be true.

Andrew: All right. The book is “Never Eat Alone.” It’s out. Thirty percent of it is brand new. It’s worth getting. It’s been the basis of my relationships over the last few years, and I urge you to get it if you … Frankly not just if you haven’t. If you have, even get it, lots of new stories, new examples in the new version, the new edition.

Thank you so much for doing the session with us.

Keith: It’s my pleasure, Andrew. Thank you very much and I look forward to seeing who’s going to take us up on our various offers and the various ideas that I threw out there. It’ll be exciting to go back and take a look at or, lots of things that I put out there. I’m looking forward to following up with all of this.

Andrew: I know I’m going to be following up with you. I know that your interest, your passion now is mobile app development, user experience specifically. I know I’ve interviewed a lot of people in that space and I have a lot of people in the audience here who are in that space. I’m really looking forward to helping you by connecting you with some of those people.

Keith: I’ll see you for dinner in San Francisco.

Andrew: Thank you, Keith Ferrazzi. Thank you all for being a part of it. Bye guys!


Master Class:
How to buy profitable businesses
(So you can make money on one day)
Taught by Ace Chapman of Business Acquisition Consultants

Master Class: Buying Businesses

Report Bugs


Andrew: All right, guys. This course is about how to acquire an existing profitable company so you can make money from day one. The session is going to be led here today by Ace Chapman, who helps entrepreneurs buy companies. He is also the founder of Partners Equity Fund, which, as the name suggests, is a private equity fund. You can see his website. . . Well, that is not his website. That is my whole screen. You can see his website on, thanks for doing this. Welcome to Mixergy.Ace: I am glad to be with you. Thanks for having me on.Andrew: Thanks for being the guy who’s going to come here even though I’m now using new software to record, which, as you can see, still has a few issues. But, the important part is that we have the key ideas here. They’re up on the big board. This is what we’ll be talking about to help breakdown the process of buying a new business.

The first thing I want to ask you about, before we even get into those tactics, is this. Right after high school, you went into this place. Do you recognize this building?

Ace: Yeah, that’s my. . . The front of it is my home. This is the back of my childhood house.

Andrew: And in that place, you tried to create a profitable business. What was that business, and what happened to it?

Ace: So, this is back in ’98. Things are just getting roaring with the internet, and businesses are wanting to start, websites, and so, me and a couple buddies decided that we were going to start a web development firm. We found the guys that we wanted to partner with. It was about four of us. We decided to come up with an agreement that we could all be happy with and we put the agreement together. Then we decided, all right, we need a website. So we started to build out our own website.

Well, it was a long time before we hit the ground and actually started talking to potential customers. Maybe two months passed before we talked to potential customers, but in particular, there was probably a week period where we were building our own site, and so we had a web guy who was putting that together, and he was taking a lot of time to do it. We’re like, “Well, we’ve got to have a great website if we want to go sell them, so take your time.”

After a week or so, we hadn’t seen or heard anything from the guy, and so, we asked him, “So what have you been working on for this week? Let’s see the progress from last week.” He was really excited to show us. He pulled out this gif that was basically for the yellow page, just to tell people that we could put a link to the Yellow Pages, and that kind of thing. But, he had spent that week putting together this gif that was basically the Yellow Pages fingers walking like this.

Andrew: Ooh, that was his whole thing, and he spent that whole time and just created that animated gif?

Ace: Yeah. Yeah, so we spent a whole week. It was little things like that, and basically two months into the summer, we finally hit the ground and started selling these websites. The fortunate thing is it was actually really easy to sell websites back then.

Andrew: Mm-hmm.

Ace: So we actually did really well for that last month of summer, when we sold several. We sold about five websites. I, personally, made about three grand, had three grand leftover at the end of the summer. It actually went well, but what if we had skipped that whole process and started a little bit earlier in the summer and been able to hit the ground running?

Andrew: And that’s what we’re trying to avoid for people here today, and the reason that people come to you. Instead of setting up and hoping that things will work out and dealing with a lot of these upstart issues, like, “What is the website going to look like?” and “Is the guy going to give me nothing but an animated image on the screen?” Instead of that, you want to help jumpstart people’s businesses by saying, “Buy a company that already exists, that is already profitable, and if you do, you can make money from day one and grow without having to deal with the smaller upstart issues that people have,” right?

Ace: Absolutely. Absolutely,

Andrew: And you actually did that.

Ace: [??]

Andrew: Sorry to interrupt. This is where you did it. I found an article on the Here, let me see if I can zoom in for people so they can see this.

Ace: Yeah.

Andrew: This is one of your earlier acquisitions. What’s the business that you bought here?

Ace: Yeah. This was a website. When we bought it, it was actually called Making, with a dash, and then and a very neat little website but the owners of it weren’t doing a very good job running the site. So me, as a user, I grew up loving the idea of the stock market and investing and all of that and so, the whole idea of being able to invest in a pretend stock market was still pretty novel in ’99.

Andrew: That’s what that business did. Allowed people to invest in a pretend stock market so that they can play around and see what it’s like before they actually go in there and put their money in, right?

Ace: Yep. So, it’s taking play money and investing it in the real market. Money was generated with advertising dollars and that kind of thing.

The business was profitable but for the guy that owned it was a side project. You know, it made an extra 30 grand or so a year for them but it wasn’t anything that they really wanted to focus on. They were a pretty big web development firm. So, I decided to approach them and try to see if they might be interested in selling the business and it turned out that they were at least open to the idea.

At the beginning, I definitely left out the fact that I was a 19-year-old who didn’t have any money at all and I definitely didn’t want to tell them when they told me the price was going to be 70,000, that, you know, I still had that 3 grand from the summer before and that was about it. So, that was the first time that I had to get creative to figure out, okay, here’s this business that I want, how can I buy it?

Andrew: Yeah. So how can you buy it? I don’t want to get too deep into the process because that’s what we’ll be spending the rest of our conversation on, but if you can give me an overview; how did you end up buying it and what happened? Then we’ll talk about how the audience can do the same thing. How did you end up buying it?

Ace: So, I figured I didn’t have a lot to lose, so my first thing was to go back to them and to get them to owner finance a portion of it. I basically said, “Hey, if I can come up with half of it, would you guys finance the other half.” They were agreeable to that. Then I ended up having a buddy that wanted to invest some cash, so actually one of my friends who was involved with the web design firm the summer before; he liked the idea as well, so he put in some money and the rest of it was literally that 3 thousand that I had. Then some credit card debt, which I avoided telling my parents about because they would have killed me because they would have known that I was going out and getting these credit cards to buy a business.

Andrew: So you pieced all of that together and you ended up buying this business. Did it actually make money from day one? Was it profitable the way that we imagined it was?

Ace: It was profitable from day one. That was where my transition happened because I remembered that summer before. I remember spending two months just trying to figure out how we were going to do this thing and how we’re going to sell and what the prices were and all those little details for just a simple web design firm. So, when I bought this thing and the closing came and, you know, I loved having this experience through my clients for the very first time that I work with now but, you know, the very first day after closing and money is deposited into your account, you realize, “Wow. Like I’m really making money.” That was a huge transition and I knew, okay, this was a much better way to get into business.

Andrew: All right, and this is what we will be talking about here today and we’ll see that there are some issues with this process, with the idea of buying companies and Ace will walk us through how he overcame them and how you more importantly can avoid them completely.

Let’s take a look at the big board here, the very first idea we want to talk about is to come up with a strict set of rules that are going to keep you on track. Ace, when I said that you’ve made mistakes before and you’re going to help people avoid it, this is a mistake that you had, that you made, when you saw an online clothing business for boys. What happened there?

Ace: So, this was something where, you know, you get excited, you get one deal and you’re like, I’m bullet proof. I think I had done another deal even before this one but I was just excited about going out, buying these businesses and being able to generate more income. You get this kind of snow ball effect because you’re able to use the income from one to buy another. So, I bought this deal and it was something that hadn’t been around a long time, but it was such an attractive price. So, you know, I usually like to buy deals that have been in existence for at least two years and this business didn’t meet that rule. I ended up buying it any way although it had only been around for six months. Bought it at a really low price. But it didn’t matter because after about three months it petered out and died. And so I definitely learned my lesson there. Another real quick deal that I had with another rule of mine, which is just having some systems in place or really not being dependent on any one person, I was buying a mortgage company years later and they had a couple of producers that were really huge. But give them a great yield and . . .

Andrew: You mean a couple of individuals who were huge producers?

Ace: Yeah. Yeah. A couple of individual producers. And so I ended up buying the business. I was a little smarter on this one. I had some items in the contract that basically allowed me to almost have a warranty on the business, and give it back if anything looked weird within 90 days. It turns out that those guys were secretly hanging on with that company until the transition. I got word of it. They were going to try to wait until the end of the 90 days to leave. I got word of it and ended up getting out of that deal. But that was a case where I didn’t follow the system.

Andrew: What is the rule that you had that you did violate?

Ace: Yeah. It’s having businesses that are run with systems and not run by people.

Andrew: Okay. So the clothing company for kids, the rule that you had set up for yourself was you wanted a company that had been around for at least two years before you bought it. Otherwise you didn’t know whether it was likely to continue or not. The other rule was you wanted to buy systems, not people, because systems can stay in place and develop. People can walk out the door. And you violated that rule. The big lesson here that you want us to walk away with is that we should have a list of criteria, a list of rules for ourselves about what businesses we want to buy, and stick with that. Or else we’ll end up suffering the way you did. You gave us two of those rules. Could you give us maybe two others?

Ace: So one of the things is really knowing yourself, and getting really clear on what you want out of a business. So I think that can be the very first rule, because most people, they understand the fact that if you walk into a grocery store, and you don’t have a list, even though it’s just groceries, you’re going to walk out of there with either some things that you don’t need, or some things that you forgot. So the real key is getting clear on what you want out of a business. But some of the other things that I look for in a business is scalability. I really love when a business has a database of users or clients.

So I’m looking at a business right now. Just to give you an idea. After that deal that I mentioned on Tom, a lot of times I have a tendency to go in the extreme. So the last two businesses that I bought that were off line deals. One of them is 33 years old. The other one is over 20 twenty years old. I’m looking at a business right now that’s over 15, and each one has large databases of clients. So the deal that I’m looking at right now has a database of 15,000 clients and customers. So that gives me an instant way to go in and go back and win over those clients again.

Andrew: Okay. I guess if someone-, there isn’t a universal list of rules that entrepreneurs should have for themselves before they go and buy because everyone is different. Everyone’s looking for a different kind of life. A different kind of business. When someone goes to your site, which I can now bring up properly because I took a screen shot, I should always have a screen shot as backup, there it is. If we go there and we contact you using the number at the top, do you help us come up with our list of criteria that we use as our rules before buying companies? Or is that something we need to walk in the door with?

Ace: No, yeah. So one of the things that I’ve started to do over the years is we go through a personality test and a skill set test. And that tells us a lot about the individual. Because each person-, I bring different things to the table when I’m buying a business than another person will. So you have to take those things into consideration. And the neat thing is you can literally buy a deal that complements who you are as a person. So when I’m looking at a business, I want operations to be handled because I like to go in, grow the business, I want to be able to focus on marketing. And so a lot of the businesses that I focus on operations is really put together really well. But they may not be doing a lot of marketing. So one of the businesses when I mentioned the 20-year-old business, that business they had a database of 14,000 people. And they had never contacted them at all.

And so that’s a great opportunity for me because I know how to go in and revitalize that list and get those people back in the group.

Andrew: And I can see how that would be a criteria for you, a business that has a lot of potential users or a lot of existing customers. But they’re not taking full advantage of it by marketing. You can go in there and bring your marketing skills and help grow the business. All right.

I have so many other ideas here on the big board that I want to get to. The second one that we want to talk about here today is to prepare your entity to expedite a fast acquisition. You actually, again, this is a mistake that you made in the fast that we are all going to learn from. There was a company that you were interested in buying, and you lost it because you didn’t have your entity created. What does that mean to have an entity created? Can you talk more about that?

Ace: So before you close on a deal, one of the things that you will have to do is have a business that you’re going to buy the assets of the other business into. So especially in this day and age when we’re doing more internet deals. There’s a lot more competition. You have to be as prepared as possible. When you get to the closing or you get to contract and you say, “Oh, by the way, I’m going to need 30 days because I’m going to need to create a LLC and that kind of thing. It just holds up the deal.

Even more than that, it makes you look like an amateur. And so in addition to just having it set up what we want to do is have the entity, not only be ready to go, have a website, even if it’s just a website that says you’ want to go out and buy businesses. That kind of thing will set you apart from the people that are really kind of amateur business buyers. And a lot of times, even if you’re paying cash for a deal.

I love to buy businesses where the owner is willing to finance at least a portion of it. And it makes a difference. Even if they’re not going to finance it, they want to feel like they’re handing their business over to a professional and not a newbie business owner.

Andrew: But, Ace, if we’re about to buy a business, maybe it is already a LLC, why do we have to have our own LLC? Why can’t we just say we’re going to pay money and buy your company instead of having our company buy your company?

Ace: Deals under $2 million, it’s probably less than 2% of the deals involved buying the other entity. It just doesn’t make sense. So you’re buying the assets of the entity. So that’s the way that those deals work is you’ve got two LLCs that are going to buy the assets. It’s really around tax reasons. If you buy the shares of that entity whether it’s a LLC or a corporation or whatever, you’re buying those membership interests or the shares is a huge tax ramification for the seller.

So on these smaller deals, most of the time it’s going to be buying the assets of that business, not the entity.

Andrew: You know what? I didn’t realize that. I don’t want to get too deep into the tax implications, but I thought when you sell a company you have capital gains taxes which are lower versus selling assets which could trigger income taxes, no?

Ace: It really depends on your cost basis. So if you have a stock, if you basically have started, if somebody started this business and obviously their cost of that stock would have been zero and yet they’re selling it for this really high price, they’ve got a very specific cost on the assets. So it really just works out, like I said, about over 95% of the time that it makes more sense for that person to sell the assets than the . . .

Andrew: Sell the assets versus the company.

Ace: The other thing that’s even bigger than the tax issue for the buyer, it’s not worth taking all the liabilities or having to do the research involved with the liabilities, potential lawsuits, and everything that’s involved with that entity to pay attorneys to go out and figure out, “Okay when I buy this entity [??]

Andrew: There’s a huge due diligence. If the small company somehow got itself into some kind of obligation that now you, as a person who buys the whole company, have to take on, and that’s a whole lot of hunting even if the person is not trying to cheat you. They might just have forgotten. Small business owners sometimes make commitments that they forget about or they just assume aren’t important but they are. I see.

So that’s why we want to have our entity set up before we go out there to start making offers. And by doing that we can come across as more professional and we’re much more likely to get owner financing which is tremendously helpful.

Ace: Yeah.

Andrew: On to the big board and the next idea is to create deal flow to find businesses. Oh wait, we did talk about that. Oh great. You had a situation about divorce that helped you get deal flow. How did that work?

Ace: That’s probably one of our top sources of deals for everybody in our business buy network. We get a lot of deals from divorce attorneys. The bottom line is there are a lot of places to go to look for businesses on the market. Any anytime you are looking at anything on the market you know that that is not going to be the very best deal because the very best deals for anything, whether it’s a house, a boat, a car, or whatever are sold before they ever take it to market when a realtor gets the call on a house that’s absolutely rock bottom and the seller’s really motivated. They’re just going to call their friends. They’re not going to put that up on the M.L.S.

So it’s the same thing when it comes to businesses. So what we try to do is go out and look for the different sources of deals where we can find people that are going to be really motivated to sell their business. And obviously you’re going to get a lot better deal when you find a motivated seller. So we’ve got a lot of these examples, but now we’ve got a couple of these where people have just really gotten so depressed and I think about one guy in particular. He hadn’t been to his business since the divorce started which I think was about a year and a half before we started talking to him.

But the crazy thing about that example was that my client had contacted him several times, set up a time to meet him at the business. We didn’t realized that he hadn’t been back to the business. And so he just stood him up. So he thought that the guy really didn’t want to sell, and after the third time I contacted the divorce attorney. I said, “Hey, your guy obviously isn’t interested in selling. He stood up my client who wants to buy it.”

And it turned out he was just so emotionally distraught. He and his wife had built this business together. He, like I said, had not been back to the business. He couldn’t bring himself to go back to the business. And so it ends up being a very neat case too because obviously we are able to help him. We are able to help him because he needs to sell that business as quickly as possible because although he had some really amazing employees that kept running the business.

They really could have taken advantage of the situation and they didn’t. And so that was great to get in on that deal, but it wasn’t going to last like that forever. He needed to sell as quickly as possible.

Andrew: I see. And because of the divorce, the couple that just split up, aren’t going to share equity in this business and talk about running it every day. They want nothing to do with each other. They have to sell the business, and they want to sell it quickly so they can move on with their lives. And that’s why they are more likely to sell.

But there are other ways, and actually before I show the screenshot of the other ways, would you mind just tilting your camera a bit? I want to make sure we get your chin in there all the way. Maybe just a little. There, that’s work. Now you’re centered nice on the screen.

Here are a few other places that you recommend people go if they want to buy businesses. We’re looking up here on the screen at is BizBySell. We’re looking at Flippa, and we’re looking at BizQuest. You actually go to these sites to look for businesses that you want to buy?

Ace: Yeah, yeah. So I go to a lot of sites. Those are three of them and I want to know everything that’s on the market everywhere because you never know where that unique opportunity is going to be. And so I’m on a lot of lists, and I network a lot with other people that buy and sell as well. So I’m getting deals from a lot of different sources, and I can hone in on that deal that meets those rules that we talked about.

So it’s a lot. One of the mistakes that a lot of people make when they start to look at deals is not looking at enough deals. The average person, they say, looks at six businesses. The average business buyer looks at six businesses before they close on a deal.

Andrew: What about you? How many do you look at?

Ace: Over a hundred.

Andrew: A hundred to one? Wow!

Ace: Yeah.

Andrew: I see.

Ace: So the buyers that we have on our network. The average is over 100.

Andrew: Wow. All right. On to the big board. The next issue to talk about is to make sure there are no hidden land mines. You taught us one way to avoid that, and that is by doing an asset purchase. That way you’re not buying a big company that might have some mysterious liabilities.

Another way that you learned is when you bought your mom one of these.

Ace: Yeah.

Andrew: We’re not talking about a Subway sandwich. You bought her a franchise.

Ace: A lot of Subway sandwiches.

Andrew: A lot of Subway sandwiches and what happened there that we should learn from?

Ace: So we did a deal on a Subway. We had a motivated seller. Everything looked great. They were willing to do some seller financing. And we kind of looked at a lot of different things. One of the things that we didn’t look at though was what the zoning commission had in for that area.

And so after about a year we got a letter from the city saying that they were claiming eminent domain and taking over our land. And they wouldn’t give us an offer for what they felt was fair which at our own cost tried to fight, but there was basically no option. We had to sell that business. And so fortunately they were valuing the land and the building. They were going to tear it down, but they weren’t going to value the business.

So we fortunately ended up changing locations and got another franchise in another place that was nearby and actually cost more money for us to do. It turned out, and these are the things that you can’t plan for, that the income for that other location was double what it was where we were. But it could have been a lot worse, and we were fortunate that somebody else didn’t already have that territory for Subway. We would have just been really out of luck with them, a very big six figure loss on that deal.

Andrew: So how could you have known that the government was going to want to take over your land and pay you just for the land and not for the value of the Subway franchise on top of it? How could you have known it? And more importantly what could the person listening to us now who says I want to buy a business . . . What could they look for that would allow them to look for all of the land mines and be fully prepared?

Ace: One of the things is now we do that. We actually will pay attention to what’s going on in the zoning level and not only try to figure out if there are issues that are coming up. But more importantly try to target where certain things are planned and try to buy businesses that may benefit from those plans.

Andrew: How do you know they even exist? I wouldn’t have even thought of eminent domain. I wonder what else I’m not thinking about that could be a “gotcha” that is just sitting out there.

Ace: By going to the zoning commission and seeing what plans are, talking to them. They’re actually, now that I do that a lot more, they love when citizens come in and want to talk to them. And are . . .

Andrew: Are there a list of things like that because that’s just one land mine.

Ace: Oh yeah.

Andrew: And I know there are many others hidden underneath the land. That’s why they’re called land mines.

Ace: Yeah.

Andrew: Is there a checklist of land mines? I know you and I connected because an entrepreneur whose software I was using said that he was getting into another business. And he was talking to you about buying a company. I know he was going to go into software or something digital, I believe. Is there a checklist for someone like that that allows them to be aware of all the potential land mines, all the things that they should go over before they buy?

Ace: Yeah. And actually I would be willing to share that with you guys. We’ve got a list of over 90 different things that you want to check. Some of them apply to certain businesses but I’ll share because I know a lot of your folks are going to be looking at Internet businesses.

Andrew: Yeah.

Ace: So I can send that over to you. It’s a checklist of over 90 different things that you want to look into when it comes to buying a software Internet business.

Andrew: I’m looking at your site which I’m having trouble showing up on the screen, but I can still show sections of it. Here we go. This is it. This is your contact information. It’s up right there so if anyone wants to reach you can they just send you an e-mail?

Ace: Yeah. Absolutely. Absolutely. So if anybody wants to get that list, if they want to shoot me an e-mail I’d be more than happy to share it with them.

Andrew: All right. Cool. I just saw that on the site and I’m glad that you’re up for sharing it. Back to the big board and the next thing we want to think about is valuing the deal by looking at return on investment. This is something that you did at actually Plato’s Closet. What is Plato’s Closet? Let me bring it up on the screen, and what is it and what’s your connection to it?

Ace: So Plato’s Closet is a store for teenagers that resells clothes. So it buys clothes and then sells clothes. And I bought a franchise in Chattanooga and also one in Huntsville. And the neat thing is, I bought that business, ended up growing it and everything went really well. The really cool thing was I was able to work with a motivated seller at one end, and then I was able to sell it, and give the people that I sold it to a really great deal when I sold it to them as well. One of the things that a lot of people don’t realize is that when it comes to owner financing I’m not just saying that, “Hey I want to go out and get a deal and do that.” I really do believe that it’s in the seller’s interest to increase their RY on the deal when they sell it by having some interest that’s coming into them and align the purse, being able to charge a little bit more. . .

Andrew: Let’s get into that. Owner financing is what the basic level of what you talked about at the start of this program. You wanted to buy a company. You didn’t have enough money to buy it and so you said to the owner, “Please”, not please necessarily, oh pretty sure, ” please let me buy this business but also I won’t be putting up 100 percent of the money. I’ll put up some smaller percentage and then over time I’ll pay you the rest.” To make that worth their while you have to give them upside right?

Ace: Yeah.

Andrew: So how do you structure the upside for owner financing to make it worth the seller’s while?

Ace: So the easiest thing is to offer them some interest on the money that they’re loaning.

Andrew: Just a straight up percentage. Not even a share of profit. . .

Ace: That’s always number one.

Andrew: That’s the easiest.

Ace: That’s the easiest. That’s number one. So I try to get some kind of deal where I’ll let them know the total amount that they’re going to make. So when I give an offer to someone, I want to give them an offer based on their total RY. So I’m not just telling them, “Hey, here’s the amount of money you’re going to get.” I’m going to add up the interest that they’re going to get. If there’s some equity, I’m going to put that in there. What the potential is and all that so they so see, all right, this is how much money I can make if this guy buys my business overall. The second part is equity. And the thing that I would like to try to do, and this is just a negotiation, is I want to ask them what is most important to you when you sell this business. Is it price? Is it the structure of the financing? Is it that you want to hold a little bit of equity back?

What’s most important to you? And they’re always going to say price. And so what that allows me to do is say, “Okay. I’ll give you price but I need to control everything else in the deal.” And it’s all about the terms. And so when you talk about the oh why when you’re buying the deal, what you want to look at is, OK how can I control the terms. And their bottom line is if I’m going to buy a $2 billion company and they want me to pay $3 billion for it but I can control the terms and pay half a million down and $50,000 a month for a thousand years, then that turns out to be a really great deal. So a lot of people before early on when I started working with other folks to help them buy businesses, I was very proud of the fact that we used the top five metrics most used to determine the value of a business. And we just realized that this bar is basic bullcrap. What matters is what’s going to be your return on the deal. And in order to figure it out, you’ve got to look at the terms, and hopefully control the terms of the deal.

Andrew: All right. We’ll talk in a moment about how to control them. But what you’re saying is that it’s not just the single price. It’s the way you structure the deal that determines your return on the investment.

Ace: Absolutely. Absolutely.

Andrew: All right. And you showed us different ways to structure it to increase our return on investment. One exaggerated example you gave us is paying $1 billion over a thousand years which of course reduces the present value of that money. You were going to say something?

Ace: Yeah. So one of the other things is once you become a seller, you want to make sure that you’re paying attention to that as well. And that same Plato’s Closet deal is a case where that happened. I go out and I buy a lot of businesses. So about 14 offline businesses, over 20 Internet businesses, and since that’s a lot of what I focus on, a lot of times I don’t spend as much time growing each business or figuring out ways to grow them. So when I sold that business, I felt like it had a lot of potential. When I owned it, it was doing about $600,000 a year in gross revenue the earning channel. I sold it back and I felt like it could get a lot bigger. I just didn’t have the ability to do it. I felt like it could be easily an $800,000 a year business.

Well, I ended up talking some equity in that deal, and it turns out that it actually grew to $1.25 million and those guys recently set me down and like, “Man things are going great.” They told me, “Oh yeah. We’re about to go into a bigger space. We’re going to do even better next year.” I’m like, “That’s great. So what did you guys want to meet about.” And they basically said, “We’re tired of sending you money so we want to buy you out.” And that was a winner as well.

Andrew: I can see that. All right back to the big board. We’re going to look at the pen ultimate point which is to control the conditions by finding a motivated seller. I like to always use examples from the guest’s actual business and here’s one that you got an opportunity to do. You bought a business that does this. How’s it pronounced? Fort Oglethorpe, Georgia.

Ace: Yeah. Fort Oglethore.

Andrew: You bought Maxim Tan?

Ace: Yeah. Yeah.

Andrew: Maximum Tan. Excuse me.

Ace: Maximum Tan.

Andrew: Yeah. So how did you find a motivated seller and get to control more of the deal?

Ace: So on that deal it was really interesting. I’ve been buying this whole business for long now, so I’ll get people who will just contact me. So I had somebody contact me. They were interested in selling their business. It was one that had been around for 18 years. He wanted me to come and meet with him at his house to give him the offer. And I really prefer to meet on neutral ground. But he was insistent. Come by. Let’s have dinner. . . I guess he figured he was going to butter me up. And so we get to the end of dinner, and I lay out what my offer is, and give him all the specifics. . . and then I just be quiet and I can tell that he’s just sitting over there steaming. His face is turning red with anger.

And after a while he’s just like, “That is absolutely outrageous. How could you offer me such a ridiculous price? You can’t expect me to even dignify that with a counter, and. . .” I had a partner there with me who was going to be operating that deal. And so we get in the car and he’s like, “Wow, we’re definitely not getting that one. We need to go out and find another deal.” I was like, “Let’s give it a few weeks and see what happens.” He’s like, “Dude, there’s no way that guy is ever coming back. Did you not hear, he was on the verge of cursing us out of his house.” And sure enough, a few weeks passed, and he couldn’t come back so he sent his wife to come back and let us know that they were willing to accept the offer at that point. We were able to get it for actually less than that original outrageous and ridiculous price.

Andrew: I see. So is the way that you figure out who’s motivated is, it seems like by talking to a 100 sellers for every one that you potentially buy, you end up throwing some of them really low offers to see if they respond. And if they respond the way this guy’s wife did, then it means that they’re more motivated than the others. Right? What else can we take from it?

Ace: So a couple of things. One of them is the more offers you make the more likely you are to-, it’s like anything else, the more you throw out there, the more likely you are to get something really good back. And I do want to correct it. We don’t talk to a hundred [??]. That would be very difficult.

Andrew: Oh, we…

Ace: …One of the keys to the whole thing is, almost creating a funnel, so what each of us in the network uses is a funneling process where you’ve got 100 deals that kind of go into the top of the funnel. Some of them are coming from older market, and some of them are coming from direct solicitation, some of them were referral sources, like divorce attorneys. So you’ve got all these deals that are coming into this, and at each level, whether it’s listing, perspectives, talking to the seller, due diligence, evaluation, all those things, you’re, we’ve got filters at each step. So by the end you may have ten or 15 sellers, but, you’re right, the idea is to look at more deals, make more offers, and find the really great deals.

Andrew: I see, all right, and then once you find the one’s where the seller is really motivated to sell, then you have more control over the deal, and that’s the big take-away from that.

Ace: Absolutely.

Andrew: All right. On to the final point, and that is to follow up, even with sellers who say no. And you had a client, you were helping them buy a granola company, and he was actually turned down when he tried to buy that granola company, and you told him to do what?

Ace: To…so we want to build a sense of reciprocity with our sellers. And one of the ways we do that is, in his case, he really loved this business, and you know, you don’t go around and do this for every deal, but when you really like a deal, eventually we know that they’ve got to sell that business. And so, this guy was older, so what we did in that case was go out and get him a couple of wholesale accounts. It was actually pretty easy, he had some friends that owned some coffee shops, they went and, basically went to his friends and said, “Hey, I need you all to order some of these granolas.” And he went back to the guy and said, hey, I got you two wholesale accounts, I don’t want anything, I just want you to know that I love your vision, I love what you’re doing, I love your business, if there’s anything I can ever do, I would love to work with you. Or, you now, whenever you do decide to sell it, I would love to talk to you about buying it.

And sure enough, this guy’s wife ended up getting sick, and he got a call, and basically the owner asked my client, are you still interested? He said yes, and he said, well just let me know what I need to do to sell you the business, in order for you to be able to buy it, I can’t imagine selling it to anyone else. And he called me, excited, and he said, “Well what should I tell him?” And I said, well let’s start off with meeting his price and getting 100% seller financing. And the guy, basically, accepted it. And he got a…one of the rare times, you know, don’t get many of those, but one of the rare times that we actually got 100% seller financed deal.

Andrew: And the reason he got, or part of the reason he got 100% seller financing is that the seller felt so comfortable with him after having this buyer, before he was even a buyer, introduce the seller to his friends and help him get his granola into his friends coffee shops. It’s that goodwill that led to 100% owner financing.

Ace: Absolutely, one of the biggest mistakes that most business buyers make, is that they think that it’s about being hard. A lot of people think that I’m this, kind of, cold-hearted and just hard-core guy. And, you know, I get that…

Andrew: …And frankly, when I saw some of these tactics I thought maybe you would be, and then with a name like Ace, I thought this guy’s clearly going to ace people out. I don’t want to play pool against him, and I don’t know that I want to sit at the other end of a table with him. I would much rather have him on my side. But that’s not the way it works. [laughing].

Ace: [laughing] Yes, yes, it’s really more about building a relationship. You know, even in that deal…I want people to be happy, a lot of times before I close a deal, you know, I kind of check in with them. And even in that last case, where they weren’t happy, you know, I kind of say, hey, I do not want to close a deal where my sellers aren’t ecstatic to sell to me, and to get the deal done. If you feel like you can go out and get a better price or get a better structure somewhere else, whatever, go ahead and do that.

But one of the things that a lot of people make the mistake of doing is coming into these deals and, you know, they get on the phone with the seller, and it’s really hard-core, and they’re like, oh, I’m going to, you know, steal this guy’s business, and all of this, all that kind of thing. And the truth is, these things are done by building positive relationships. So as much as you can, it’s great to not ever get nasty, always be very professional, always really be positive, and building as close a relationship possible, so we have kind of the three Rs. We want to show the seller respect, we want to hopefully create a sense of reciprocity and we also want to build a rapport. So, we focus on those three things with each seller.

Andrew: All right, people want to follow up with you, the best place for them to go is just to the website, which actually has your name. Like me you bought your own domain. Mine is you got And when people go to there’s one section I recommend they check out before anything else. Yes all your contact information’s there, yes they can follow up with you if they want to buy a company. But I like that tab at the top about your story. I especially like how you talk about how you built the first million dollar business using ugly as a lure and I’ll let people discover that story for themselves, it’s great

Hey, just so I give the audience a good sense of who’s a good contact for you, what size businesses are you, do you help people buy and what do they need to have in order to work with you?

Ace: So, most of the businesses that we do are under $2 Million, there are specific reasons around that, on the website you saw me mention Micro Private Equity which happens to be a term I got to coin on dubsepedia [sp.] but we focus on deals that are under $2 Million because the multiple is just drastically lower than what the private equity guys are competing for once you get above that amount. But we help all kinds of folks.

Andrew: I don’t want someone who’s listening to this who says, “You know what I never started a business before, I don’t have any money but maybe this guy Ace can get me 100% donor financing on some businesses already profitable from day one. I’m going to contact him and he’ll set me up in business for free.” That’s not the way it works, right? I want to make sure that we only connect you with the right people.

Ace: So, the ideal person is someone who understands that this is work, I mention a little bit about our process, as you can see it is work and so the truth is even if you’re in a tough situation, we’ve helped people that have gone through bankruptcy and that kind of thing, if you’re willing to make up for that with looking at a lot, you know you may have to look at 300 deals in order to close one.

The thing that I don’t promote, and that I don’t want to contact me are the get rich quick type of folks that think this is the new path to just instantly become a millionaire or that kind of thing, so as long as people are serious about buying a business and are willing to do the work involved with going out looking at deals, finding the right deals, getting a motivated seller. Right now there are just a lot of opportunities.

One of the things that I did want to mention is that we’ve got a tremendous number of, actually 2 million baby boomers that own businesses that are going to have to sell those businesses at some point or get rid of them or pass them down or whatever and a lot of them are having trouble finding buyers. And so especially, it’s a little bit more of a competitive market when it comes to internet business but if you’re able and interested to go into offline business, that’s where a lot of opportunities are and what I tell people is the internet we’re used to competing with other internet [??] and the cool thing when you get offline is that you’re competing with people who have no clue. Like I mentioned, they’ve got a 14,000 person database, and they just don’t use it. We’re not going to find that a lot, so that’s what the opportunity is, it depends on what your interests are as to how, what position you need to be in but a big part of it is being able to do the work.

Andrew: All right, Ace Chapman, thank you so much for being a part of this and for teaching us, everyone out there if you’ve got anything of value I always recommend that you contact the person who you heard and let them know by just saying thank you. I’ve seen incredible relationships built up here on Mixergy with people who said, “I got something of value out of this interview, I got something of value out of this course. I’m going to contact this person just to say thanks.” And down the line, when it’s time to build a relationship or do some business together they have that warmth that just starts with what I’m about to do right now which is saying, Ace, thank you so much for teaching us.

Ace: Great to be on, man.

Andrew: You bet, thanks for being a part of it, bye everyone.


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