Episode 74:De-Risking the Cthulhu
Have either of you ever attempted to make the leap from consulting to running a SAAS business or other type of online/tech company?
Summary
A listener asks whether Nick and Kai have moved from consulting to SaaS. They treat it as a de-risking question and spend most of the episode on why SaaS growth is much slower than expected, why passive income is a myth, and why personal happiness is a better target than revenue growth.
Highlights
- Nick’s books and courses are about two-fifths of his income, but without one or two consulting clients he says the business would be ‘very borderline, like in the red.’
- Kai reframes the question as a de-risking problem: with six clients, losing one costs you a sixth of your income; with 600 customers, losing one barely registers.
- Nick references Gail from Constant Contact’s talk ‘The Long, Slow SaaS Ramp of Death’, either you deal with brutally slow growth, or you hit a fast-growth scenario where, as Nick puts it, those people are not on the beach.
- Kai says passive income doesn’t exist as most people imagine it. Even a mostly automated funnel still needs someone watching Facebook ads, dealing with support, responding to security vulnerabilities, and handling feature requests.
- Kai criticizes the curated social media persona: entrepreneurs post beach selfies and six-figure claims while hiding anxiety, burnout, and bad relationships, which makes struggling people think they’re broken.
- Nick tracks his own business milestones through Maslow’s hierarchy, he knew he’d leveled up when he stopped reading menu prices and started ordering appetizers, then paid off student loans, bought a house, and is now building retirement savings.
- Kai took a deliberate pay cut moving from consulting to info products and coaching because the work made him happier. Nick adds Paul Jarvis’s frame of a minimalist business: drop what isn’t working, double down on what makes you happy, not just what’s profitable.
Read the transcript
So, um, we got a question again. Um I I’m shocked that people are still even listening to the podcast, much less asking us questions. It seems to indicate some sort of What’s the term? Engagement. And that’s terrifying. And we’re honored, but also stage an intervention. Okay, so here’s the question. Have either of you ever attempted to make the leap from consulting to running a SaaS business or other type of online tech company? I’m referring to something that deals with lots of customer Customers paying a little as opposed to a few clients paying a lot, ideally, as with consulting. Perhaps you already have or are right now, and I just don’t know about it. Either way, I’d love to know what your thoughts on it are. I think I’m already doing this to a degree. Like my books are, I think, around two fifths of my business income, right? And so that’s absolutely a lot of customers paying a little, right? Most of it is Most of it is $50 books or $150 courses. And so you’re getting some sort of value, and I don’t ever have to know about it. When somebody signs up for draft analysis, it doesn’t affect my workload at all. I’m still delivering draft analysis in exactly the same way. So I’m doing that for sure. That said, DraftRevise and my other consulting engagements, they’re if they went away, I wouldn’t have much of a business anymore. I wouldn’t be self-sufficient quite as much. I think I’d be very borderline, like in the red, which is scary. But I also that also means I don’t need very many consulting clients. I just need really one or two in order to keep the whole operation afloat and make me sleep better at night. As far as SaaS business is concerned, the short answer is no. The medium answer is Gail from Constant Contact, an email provider. She did a talk at Business of Software four or five years ago called The Long, Slow Sass Ramp of Death. which you only barely need to listen to the talk anymore to get the gist of it, but it’s essentially the growth of a SAS is pretty durable and predictable and also Extremely slow, much slower than you would ever want it to be. And so your I think it would bring on a different kind of set of stresses, right? The goal is to feel comfortable about your position on Maslow’s hierarchy. And I don’t see how a SAS I mean, never mind the fact that I can’t program to save my life, I don’t see how a SAS would get me out of that, you know? And I’ve never felt a significant ambition to do that. I don’t feel like I’m walking into my job every day and saying, okay, well, I’m going to go not run a SaaS again for the 2000th time. Like, no, that I like my job and I actually like consulting in a lot of ways. I don’t like sales. I do it because I have to, not because I like to. I don’t like haggling. I don’t like all the negotiation bits. But I actually really like helping businesses. Like, I really like. Once I get in the door and I’m doing design and talking with people, and I’m trying, you know, I earn a little bit of respect, and it kind of snowballs from there. I get a lot out of that, and I don’t know if I would necessarily get that satisfaction out of a bunch of people paying me $49 a month, says the guy who owns Revise Weekly. It’s the closest thing to a SAS that I’ve got. It has churn, it has MRR, it has many of the same variables, but I sit down and write every week. I don’t know. I don’t know.
What about you, man? When I read the question, I sort of frame it in my mind differently than the person who asked it asked it. I see it as. How do you de-risk your business as a consultant? How do you go from a position of, well, I have six clients, which means if I lose one, I lose one-sixth of my income That sort of sucks. To okay, I have 60 clients. If I lose one, I lose 160th of my income, or 600, or 6,000. So the more clients we have paying us, the more customers we have. the less risky it is for us to run our business. And you and I are both headed in that direction by adding educational products, information products to our suite of offerings. What we don’t have or what is rarer in that situation is Monthly recurring revenue. You have it with subscription services like Revise Weekly with my mentoring program and coaching program, and some things that are coming down the pipeline. And that gives the benefit of Steady recurring income, but it also gives us the benefit of we’re serving many people at once with a lower cost of delivery. So I woke up this morning and three people have bought my book, Podcast Outreach, on how to get on a podcast as a guest. And That’s wonderful. Thank you, customers who bought that. I deeply appreciate you. I had to do absolutely zero work to fulfill that because the book is already written, the payment hits, the book is sent out, they get it, and wonderful, they’re set. So, I see it as a valuable strategy for freelancers and consultants to move towards. You want to de-risk your business. If you have a single whale client, that’s a risky position. If you lose that client, you lose 100% of your income. If you have some income from coaching, some income from consulting, some income from products, some income from subscription services, you have, not only do you have different revenue streams coming into your business. You have a larger number of customers. So, if you lose one consulting client, it’s not going to drastically affect your business. It will affect your business, but it won’t drastically affect it. So, when I hear this question, I mentally reframe it as. How should you de-risk your business by moving from serving a few people with a lot of your time to serving many people with a tiny bit of your time?
Yeah, so you’re kind of doing two things there. One of them is that you’re kind of de-risking it by diversifying. So you have a lot of different sources of income that they all fit your positioning in some capacity and they all solve different expensive problems. Another thing is you’re kind of building a product ladder in that situation. Like you’re able to at least sort it from low to high. And we’ve talked about this a lot, where you Start out with an initial product that’s a little bit lower value and then you work people up to the big consulting engagement. And as with any funnel, you’re going to lose people along the way and that’s completely fine. Or people are going to jump in further up and that’s also completely fine. But that’s kind of what the structure is. And you’re using your positioning to define what those things are and continue engaging with your audience in a way that provides value to them.
In terms of the I’m trying to remember the question, but the exact wording of it jumps to my mind. In terms of sort of subscription-based revenue or monthly recurring revenue, I’m a very big fan of that. But, like you, I’m not necessarily a fan of running my own software company. So, I look at my own business and I’m continually trying to identify opportunities to Launch service offerings that are very scalable, that don’t involve a lot of my time to fulfill, but do have a monthly recurring revenue component to them. I’m able to get the best of both worlds, where I have a subscription-based service that provides monthly revenue to a number of customers, but doesn’t require me to be building software. It’s providing value in some other means.
Yeah, yeah. And honestly, like. I mean, what would be involved to do something like a SAS? Also, what is the motivator behind doing the SAS? Because I think people look at Who would be a good example? Amy Hoy. Amy Hoy is a terrific example of this. She’s somebody who built, this is not a pejorative, a lifestyle business out of a SaaS, right? And it helps bankroll a considerable amount of her life. And I think that’s great, right? Like that’s something that works extremely well for her. But they look at that and think, oh, I get to be on the beach all the time. A SaaS business is not like that. It’s not a get rich quick scenario. Okay, one of two things happens. Either the SAS putters along and you deal with the long, slow SAS ramp of death, which is like 90% of SAS’s. Or you did your sales safari correctly, and you’re in a growth scenario where all of a sudden your business is doing really, really well. I can think of several I’ve worked with that could easily qualify as that. And having been on the inside of those organizations, I can tell you they just bring on a different set of problems. Those people are not on the beach. Okay. They’re not like, what is the lifestyle impact end game that you are thinking about with this? And what does it have to do with your business and its positioning? Is that you’re doing not consulting because you hate people? Okay, great. Now you have to do support, right? You still have to interact with people. I don’t believe for a second the idea that you can use a SAS to run away from the deeper structural issues that you may be facing in your business.
I’ll even one up that. I don’t believe that passive income actually exists in any way. We spent a whole episode on passive income before you said this. But the way it’s always framed, and like I’ve received questions about this recently, like I’m a consultant, I’m a freelancer, I want to add passive income to my business. What do I do? Well, It’s not passive. You’re still doing work in a sense. There’s no really, in my mind at least, conceivable vision of a business where you aren’t doing any work, but you’re still making money, and it’s just completely hands-off. Maybe you have a huge team and you’re supporting it that way, but then you have to manage it. It just seems like passive income doesn’t really exist in the vision that so many people have of it. I’m going to start a SaaS. I’m going to get 500 customers. They’re going to pay me $10 a month. And I’m going to make $60,000 a year. And I never have to do any work. Now, you still have to do some support. Rails is going to upgrade on you. There’s going to be security vulnerabilities. You’re going to have feature requests. You’re going to be dealing with business issues and still need to provide value to customers. You’re still going to need to put in work, put in time. It’s not actually going to be passive, it might be less time-intensive than consulting or another channel. But even if we look at, say, a mostly automated funnel where we have Facebook ads bringing people to an email course to sell copies of a book or a subscription service, well, what happens if a competitor enters the market? How are you optimizing your Facebook ads? How are you monitoring and managing your funnel? There are so many parts of the business that need a human’s attention on it, that need your attention on it as a business owner. That I don’t really think it’s truly passive income. It’s income that doesn’t require you to do consulting or income that doesn’t require you to perform a service. But is it passive in the sense where I’m sitting on a beach and I never have to do any work again because I’m on a tropical island, YOLO? Not really. It’s passive in the sense where You don’t have a client saying, hey, we need that project three weeks early because the CEO made this decision. But it’s not passive in like the dream of passive income that I think a lot of people have, where I’m going to be able to make money without doing any work. If you get to that point, it’s after years of doing work. It’s after a decade of growing the business to the point where it’s self-sufficient in that way.
Yeah, yeah. No, I couldn’t agree more. So let’s break down. Let’s say somebody has paid you $20 for a thing you’ve done. First off, you’re probably undercharging yourself, but let’s look at the $20. And think about A, the work you’re putting into it, B, the maybe production costs for it. So, okay, well, if you’re getting it over credit card, then you’re already losing like a buck fifty or something like that to credit card fees. So there’s that. Fine. There are worse fates. But you’re also okay, let’s say you need to record a podcast with your dumb friend sometimes. Okay, well the amount of money that goes into this, we pay an editor. I’ve bought audio hijack. I had to, frankly, pay for my internet connection. I had to buy the microphone that I’m talking into and the preamp and all these things.
Very fancy microphones.
A really fancy microphone, and it’s a really fancy preamp. And, you know. It’s a really fancy pair of headphones. And all these things, some of those are fixed costs. Okay, so maybe I’m going to spend a little bit of money up front and Then I’ll have the tool, right? You don’t have to buy a laptop every single time you want to use a computer. So there’s that. But you have to amortize the cost of buying a laptop every few years. into the cost of running your business, or you’re not going to be able to afford the next laptop, right? So there’s that. And those are your expenses. And you take that out and you have profit. Okay, well, how many books do I have to make to turn a profit? And I know this is horribly didactic, business one hundred like six-year-olds learn about this shit. You have the profit. You can take that profit and put it back into the business and buy a fancier microphone. Or you can take it and hire somebody else to do something. Hi, Kelly, how’s it going? Or you can use it to go to Japan in six months, you know? Only one of those things actually results in a lifestyle impact. So, what all of the business porn motherfuckers that we rail against on this podcast All they talk about is the flight to Japan and the selfie at Shibuya Crossing. They don’t talk about the amount of money that you’re going to be blowing to get there. Because there’s all these things you have to do to sustain yourself, buy the equipment, sustain the rest of your business, and then build in enough margin to account for both growth and the additional discretionary time. And so it’s not even enough to say this is where I’m going in this. It’s not even enough to say that you’re getting profit. It’s enough to earmark that profit for better quality and higher amount of discretionary time. And I think that’s the thing that we’re kind of circling around with this whole conversation. It’s like, okay, well, and we joke about it being my ties on the beach sometimes, but like, it’s. Whatever it is, it can be driving your car around and also owning a car for some reason in 2017. It can be going on a vacation. It can be going to a nice meal, you know, like anything, anything that you want to be doing. And so I want to put a laser focus here on what you can do from business structural standpoint. That’s basically what this entire podcast is about to improve the quality of life. Right? All you have to fucking care about is the quality of life. If you’re running a forty person business, great. Most people I know that run 40 person businesses are pretty stressed out though. So with that in mind, I personally, and you may disagree. I personally believe that independent consulting builds in a high enough margin that I can have a better quality of life. You know what I’m going to do after I get off of this phone call with Kai? You know what I’m going to do? I’m going to snuggle my dog. I’m going to go outside in the 71-degree weather and I’m going to walk my dog. And he’s going to be so happy because he’s been pent up in the house all day. And it’s going to be amazing. And I’m just going to be present there with him. And I would not trade it for the whole world. I would not trade it for your shitty job at Google. And so how do you deal with the struggle to get to that point? And how do you structure your business in a way that allows you to snuggle the dog after a call?
I think part of it is Recognizing that a lot of the content that’s put out there, I mean, the I hate to say like it’s the Instagram generation’s fault, but I’m about to say it’s the Instagram generation’s fault.
Oh, it’s absolutely their fault. Let’s, oh, oh, dude, let’s get into it. You go, you go talk.
Talk. Oh, it’s just so much of what is put out there through social media, through blogging, through content. It doesn’t give a realistic perspective on what life is really like. Like, I know so many entrepreneurs who brag about their six-figure income and don’t have a high quality of life and aren’t happy with their life or their business, but. The persona they put out there is, hey, look at me, I’m on the beach. Hey, look at me, this exciting thing is happening. Because it’s such a curated Presentation of their lifestyle and what’s going on, you don’t see any of the shit. You don’t see any of the bad stuff that’s going on. You don’t see, oh, well, my crippling anxiety kept me inside for two days because anxiety sucks. Well, that’s never presented to the world. And the downside to that is it gives the false perspective that, hey, if you’re running a business, you need to hustle harder. And if you feel tired, or feel burnt out, or feel depressed, or feel anxious. Sucks for you. Work harder and dig out of that hole, which isn’t true at all. Like, I’m so angry at this generation that I’m part of because. All we do is present this curated selfie to the world of how wonderful everything is, and it shoves the reality of sometimes life sucks, sometimes you’re burnt out. Sometimes you’re depressed, sometimes you’re anxious. It shoves those realistic parts of being a human, of running a business, of being an employee, whatever it is you do. Under the rug. And if you have any sort of stature or any sort of audience in the world, and you’re presenting this sort of false facade to them, all it does is make people think: wow, if I’m anxious, or if I have depression, or if I’m dealing with these issues, I must be broken. No, instead, it’s you just seeing all this entrepreneur out there saying, oh, I’m not as successful, and I haven’t hit, you know, six. Figures a month yet, and my business isn’t at that milestone yet, and I don’t have enough monthly active users, and I’m not on a beach. I must be fucked up. No It’s this entrepreneurial, entrepreneurial view of the world out there that just, I think, destroys the psyche of so many people because all we can compare ourselves to is The selfies posted on Instagram from the beach, but what you don’t see is, oh, I busted my ass for six years to get here, or oh, you know what? My relationship sucks, but We took the cute selfie together to preserve the image that it’s looking great. There’s, uh, it just makes me so mad.
I, yeah, I mean, you went in a different direction than that, with that, I expected, but I like it. I think that’s important. So, like, one of the There’s kind of two public conversations among at least my community, but I think most of my generation would be inclined to agree with this. And one of them is the very manicured selfie culture that you would see typically on Instagram and to a lesser extent Facebook. Facebook is kind of a hybrid of the two. And then the other is what you would typically see on Twitter, which is people setting each other on fire for sympathizing with the fascist regime. And that’s basically, you either have the manicured My Life Is Amazing thing Or the I’m losing all of my friendships because of somebody that I decided to be allegiant to, like, whatever. And I think the best option is to not do either of them. Honestly, I think that it is to opt out of that sort of conversation and develop a different kind of conversation and a different kind of community. You get one life. And you are. Frankly, wasting it by engaging in either tire fire. And the problem is that one of them is a very attractive and polished tire fire that you can say to yourself is almost a serenity prayer. I can understand how it would be a sort of armor against a really hostile world. I think a lot of people downplay Instagram’s role in that. And You know, there’s worse, right? I’m not going to hate you if you’re on Instagram because I understand the appeal and the attraction to it. But how about also not Instagram? How about also not any of that shit? Like, I don’t know. Like, I get way more out of running this dumb podcast and running a mailing list.
Right, right. We’ve taken this in a really, really different direction than the question originally started out as. Have you considered running a SaaS or an internet business with like multiple customers? I already answered it. I mean, yes, A, yes, B, I think it’s important because, like you said, the ultimate goal, like, if we want to talk about a key performance metric or something to aim for, it should be if you’re happy in your life. And. If you’re happy in your life making less money than you could hypothetically be, you have one. You are happy. If you’re making a lot of money and you’re happy, you have one. You are happy. The money doesn’t matter. The number of customers doesn’t matter. That those are all vanity metrics. What matters at the end of the day, I really think, is: are you happy in your life? Or are you slowly getting happier each day or each week on average? I think That’s the one thing that matters. And if you’re able to look at your life and say, you know, things are good. I’m happy. I’m doing consulting and I enjoy it. And yeah, I could grow and take on more clients. But I don’t necessarily need to or want to. Or, yeah, I could start a SaaS, but I don’t necessarily need to or want to. I’m happy with where I am in life right now. A culture that’s so focused on work, that like I think the American culture is where we have so many hustle memes and so many, like, oh, you need to be putting in 60, 70, 80 hours a week into your job, into your startup, and really get it going and really feel the grind. No. Why not put in thirty hours a week and spend the rest of your time doing a hobby, make art, do do pottery, watch movies, create things? Focus on happiness above anything else. I think there’s ways to diversify your business and move away from the risk of having just a few clients, but beyond that, How do you move away from the risk of not being happy in your life or in the business you’ve built for yourself?
I mean, I’m going to go back to Maslow’s hierarchy again because I think that actually matters. Like the goal. This is something that nobody tells you. The goal of being an independent, you don’t have anybody else providing for your basic needs. food, shelter, um, clothing, like you have to get those on lock first, okay? And I genuinely believe this. People probably think that I’m crazy. But if you have to do one thing in your business It is get the basics down, right? And get them completely on lock so that you never have to think about them. I knew that I had leveled up in my business, and this is going to sound so nuts when I stopped looking at prices on the menu at restaurants. When I started ordering appetizers, because for like seven years I never ordered appetizers. And I would get one drink because it was what was socially acceptable and encouraged, but I would never get a second. Like when I started buying the appetizer, I knew I was okay. And I know that I know how crazy that sounds. But when you get to the point where you are also yourself buying the appetizer, okay, now you start to think about the next level of creature comfort. It took until I got my business on an even keel before I started paying off my student loans. When I did that, I worked on the next thing, which was getting a house. Now that I have the house, you know what I’m working on. Building up my retirement account, which is actually something I can do really slowly, and I don’t have to worry about it. Beyond the bare minimum, don’t really need to do a whole lot in my life. And so What happened in the wake of that? If y’all have seen Parks and Recreation, you know there’s a character named Chris Trager who’s he’s like an exercise nut. But later in the series you realize that he’s an exercise nut because he’s secretly miserable and he’s running from his demons literally all the time. And I had to face a lot of shit in myself in the past year and ask myself what really made me happy. Frankly, the tech industry is vicious and horrible enough in 2017 that it ain’t my job anymore. I mean, I like my job. It’s funny on a podcast just saying I don’t like my job. I do like my job. But it has come to the point where that is no longer sufficient. It is no longer enough to just have the job. Because I used to just come home from work every day and what was I doing? Writing cadence and slang. Now I write during my job. And when the job ends, I cook or I snuggle my dog and I had to find More space for myself to be happy and grateful for what I have in my life. And That didn’t come easily, but it is also the next step for a business. Once you’ve got the beginning of the Maslow’s hierarchy, that’s the middle of the pyramid. And you’re working your way up that and figuring out what’s going to make you truly happy. Guess what? It probably isn’t more money. I don’t know why I’m going on this gigantic rant, but I do feel that it’s. Tremendously important and valuable for like kind of setting the table around all of this. And why are you choosing this configuration of the business? Right? Because that allows you to get further up the pyramid.
No, I completely agree with you. And I think that one of the things that isn’t talked about a lot, but should be, is intentionally taking a pay cut to focus on new aspects of a business that interest you. Oh, yeah. Let’s talk about that. Like, like, sure. So, like, I mean, as I’ve made the transition from consulting to more of a focus on information products and educational products, there definitely has been a step down in my income. I could make more if I was focused more on consulting. But I’m more interested in building something durable, something sustainable, writing and creating these products and creating these courses. That provides me with so much emotional joy, and my coaching students that I get to work with. There’s so much passion and happiness in my life because of that. I might be making less than I was when I was full-time consulting, but I only have one life. And if I have to choose between I can make more money, but I’m not quite that happy with the work I’m doing. Or I can make a little less money, and in a couple years, it’ll be making more money because it will grow and I’ll be happier. I mean, I’m 31. I’m young. I have a long life ahead of me. I’m always going to pick option two because I want to optimize for my happiness in every single way I can.
Right, right. Yeah, draft is probably going to make less in 2017 than it did in 2016. And there’s nothing wrong with that. And I’m not even just saying there’s nothing wrong with that because. I’m secretly in my heart of hearts. I’m going to like hang up this phone call and stare into the void while drinking Malorton listening to the Smiths. I actually genuinely think there is nothing wrong with that full stop. I am not just putting on a face. And people have asked me this. They’re like, are you sure? Yes, I’m absolutely sure. You know why? Because last year I had the biggest financial shock of my life by buying a half million dollar house. And I don’t have that anymore. And so I don’t need to go out and make $250,000. It’s stressful and horrible. If it falls into my lap and I get a lot of really great opportunities and they fit into my life in a way that makes me feel comfortable, then I’ll absolutely double down on this. Like, I’m not against it if you give me more money. Lord knows, I just took out a draft revised client an hour ago, right? Like, that’s happened, but you know, I’m not gunning for it. That’s not my benchmark. My benchmark is not perpetual growth. There’s a guy, we’ve talked about Paul Jarvis a few times on the podcast, and he hasn’t come up lately, which is unfortunate because he’s been blowing my mind lately. He talked about the idea of a minimalist business. And as somebody who believes that Marie Kondo just recites a documentary, I could not agree more with the idea of a minimalist business. And I think this goes back to answering the original question quite well, because it centers so much on getting rid of things that aren’t working, but also doubling down on things that actually make you happy. Not things that are working, things that are making you happy. Big difference. And I think that matters quite a bit. Does that make sense?
Now it makes complete sense. I think, I mean, in any business, you could find a way to take what’s making you happy and Connect it with revenue or find what’s making you happy and figure out a way to support that through some other means. And I think that’s the important lesson. Again, it’s optimizing for happiness. And I like Paul’s take on having a minimalist business and saying no to opportunities. I’m sure there are dozens of opportunities out there for either one of us that. Could have a sacrifice like beach time or snuggle with dog time or snuggle with partner time. But really, like, what’s the goal of running a business if not have that time to spend with the things and people you love?