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[E4C23] Why Startup Validation Doesn’t Work & What To Do Instead – WPCurve

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Ever feel like starting a business is like throwing spaghetti on the wall to see what sticks?

I’ve interviewed nearly 50 entrepreneurs to date, and most of them had at least 1, if not many, business failures in their lives. Some were low-key failures that just ended up eating up a lot of time, but fortunately, did not result in financial ruin. Others were massive, crash and burn failures that cost a buttload of money, theirs as well as their investors’, while sending the founder into credit card debt.

One of the key challenges for entrepreneurs is learning how to fail quickly, to ensure that your precious time, energy, and resources aren’t being wasted on a business idea that’s going no where. But it’s so hard to know if your endeavor is a tire-kicker, or if you are just on the threshold of success. So how do you determine whether or not you should move on, or keep powering through?

Enter the art of startup validation – strategies and tactics to test whether or not your market wants the products or services you offer, before you go out build it.  But how well do these strategies actually work?

Dan Norris, co-founder of WP Curve, is a serial entrepreneur who has launched several businesses, including software products and a private community.  He talks about 4 common startup validation strategies:

  1. Running surveys and focus groups
  2. Preselling your product before building it
  3. Buying traffic (using Facebook Ads and Adwords) to test your product
  4. Building a minimal viable product

And some of the common pitfalls of each. In this interview, he’ll talk about:

  • The beauty of recurring income & how entrepreneurs can create enough value to prevent customer attrition.
  • The challenges of leveraging a private community as the value driver for a recurring revenue business.
  • Why giving lifetime access as a product launch strategy doesn’t validate anything.
  • Why buying traffic to validate your business idea won’t necessarily give you the market feedback you want.
  • The one startup validation strategy he endorses.

And much, much more. Show notes and links to all the awesome resources Dan shares can be found on www.entrepreneursforachange.com/23.

Mentioned in this interview

Where to Find Dan

FULL EPISODE TRANSCRIPT

[03:45] Lorna: So, Dan, I’m so glad to have you with us on Entrepreneurs for a Change especially with all your experience about startup validation. So I’d love to, first of all, thank you for starting a company that has been a huge help to me and my business. That is WPCurve. You guys I don’t know how much time and frustration you’ve saved me through your service, but you all are so fast and you get the work done so well. I’m amazed so thank you so much, Dan.

[04:20] Dan: Well, thank you. That’s awesome. I’m glad to be here as well, so thanks for having me.

[04:25] Lorna: So Dan, please tell our audience who you are and what you do.

[04:29] Dan: Well, my name is Dan Norris. As you’ve mentioned, I’ve got a company called WPCurve. I started that seven months ago. For the seven years before that, I started lots of other companies, none of which did particularly well. I’m guess I’m an entrepreneur and I’ve got a couple of different things on the go. But WPCurve is my [inaudible 00:04:43] at the moment because it’s one of the first things we’ve done that’s really hit a nerve with people and started to grow the way we wanted it to.

[04:51] Lorna: Dan, tell me, how many businesses have you launched before you finally nailed upon a model that actually seems to be successful?

[05:04] Dan: Well, it probably depends on how you define a business but I’ve tried lots of different things. I don’t know how many, lots.

[05:12] Lorna: According to the IRS in the United States, the Internal Revenue Service, if you’re not generating income in two years, it’s a hobby. However, many of us entrepreneurs know that sometimes, you got to try a number of different things, and for a while, be qualified as a very expensive hobby and either it’s going to take or it’s going to take. So I guess of all the different things you’ve worked on, which ones were the most successful?

[05:40] Dan: Well, everything I’ve worked on earned some amount of money but the problem has really been how do I get it to the next stage? Eighteen months ago, I had a web agency just building websites for people. It was a proper business. I think we’re doing probably almost $200,000 a year, and I have staff and an office and things. But I just wasn’t really able to grow it any bigger than what it already was in terms of the profit.

So I try a bunch of things. We’re probably talking about that a little bit later in terms of the things I’ve tried since then, but WPCurve is definitely the most successful thing we’ve done even if it’s only been going seven months. It’s already more profitable than my last agency that was going on for seven years.

We’ve already got more customers. We’ve got more recurring revenue. We’ve got much high growth and much better business model that grows. It’s sort of “built to grow.” We’ve also got a bigger and a better team. So, yes, WPCurve already is my best company.

[06:32] Lorna: So tell me in terms of your success criteria. Are there specific key performance indicators that you would say were important to you in order to define what successful business actually is? It seems like your previous web agency – I mean, it was generating income. Two hundred thousand dollars a year is pretty good for a lot of small boutique web agencies.

It’s not like a Saatchi & Saatchi, for example, but a lot of people might be very happy. A lot of entrepreneurs might be really happy with a business that is clearing six figures. But for you, it seems like that wasn’t working for you. So can you share with us why and what level were you wanting to achieve that would allow you to say, “This is actually successful.”

[07:25] Dan: Right. Well, I would’ve been happier if I got to keep all that $200,000 every year.

07:30] Lorna: I see, okay.

[07:31] Dan: So that’s just revenue and not had expenses. So I think I still earned about $40,000 as a wage every year.

[07:39] Lorna: Wow, so you’re billing $200,000 but then after all your expenses, you’ve cleared $40,000 in profit?

[07:43] Dan: Yes. So what happened was in my first year, I build around $40,000 and I tipped all of it. Then as I tried to grow, I really [file] [ph 07:53] to grow the profit. I never really grew the revenue. What I really wanted to do was consistently grow profits, and what I also wanted to do was spend all of my time doing stuff that I love doing. I wasn’t doing either of those two things, and I couldn’t figure out a way to do it. So I sold the company and started again from scratch.

In terms of success criteria, from a business point of view, I want to have a bit of an impact. So I want to have thousands of customers. I think eventually I want to be doing millions in revenue because I think that would be a substantial business that impacts a lot of people, and I wanted a big team of great people and a big community around a business as well. We are pretty big on content and community.

None of that stuff is really happening with my last business. Also, I want to spend every minute of everyday doing what I love, and none of those things were happening with that business. We’re sort of on the way to that with the current business [inaudible 08:42].

[08:43] Lorna: I think that is something that most entrepreneurs try to achieve, right? We want to be able to play in our zone of genius. We want to be able focus on the thought leadership, making the high-level strategic partnerships coming up with a big vision not on execution.

[09:02] Dan: Yes. I think people prefer doing different things. I don’t know if I like that many of those things either. My co-founder certainly does. I like doing content, and I like building the products and strategizing and writing processes not following them but writing them, building the team. I like all of that stuff. I don’t really enjoy doing the day to day work and going out and having coffees with people trying to convince them to buy a website. That was the kind of work that I really need to be good at with the last company, but I don’t need to be good at with this company.

So I think just yes, whether that’s what you call or whether it’s just like finding a way to match up what you’re good at, what you love doing, and also what people are prepared to pay you for. I was close before but I just didn’t quite get it but I think I’ve got it now.

[09:47] Lorna: So can you tell us what exactly WPCurve does. I know you guys are fairly transparent in terms of how much income or revenue the company generates online. I think you refer to it as monthly recurring revenue. So you wouldn’t mind sharing some of your milestones.

I mean, seven months is really not that long. I think a lot of people would be overjoyed to achieve a level of business success that you guys have achieved in only seven months. So, please tell us what exactly you guys do and how much income you’re earning right now.

[10:22] Dan: So it’s small WordPress fixes and we do unlimited fixes for $69 for a monthly subscription. So our customers pay us every month. For some customers, it means doing one or two fixes [inaudible 10:32] nine or 10 fixes one month and four or five the next month, or whatever it is. Across the board, it averages out. We do small 30-minute fixes or jobs, which means we can have pretty good prices around those things.

It means we can build a team and we can have that team doing most of the work and me and Alex oversee it but we don’t have to be going out of talking about every single project. It means 100% of that business is recurring, which means it’s growing and very stable. In terms of milestones, the first week, I had 10 customers. The first 23 days, we past our cost. We can past off our wage for the first probably four or five months.

After 23 days, I think we have 20 or 30 customers, which was enough to pay for one developer and hosting and whatever else we’re spending money on Infusionsoft. Now, we’re up to I think $12,000 a month and about 200 customers.

[11:26] Lorna: Wow. So when you guys launched, how did you get your first customers?

[11:29] Dan: From the Dynamite Circle. I put a thread in there. It’s so in there. If you search for “live ninja,” or “live webpress,” “live chat” or something like that, there’s a thread in there. It’s pretty funny because I put it in there wanting some advice or idea and the response was a little bit lukewarm.

[11:46] Lorna: That’s amazing because I would have been overjoyed. I’d be like, “My god, sign me up right now.” Let me tell you, every time I do, I have to go through any number of these small little fixes. I spend hours on it. So the process is figuring out what needs to be fixed, and then specking it out on Odesk. Then try to find someone competent that will fix it and not mess up my website or turn it into a link farm on Odesk and managing that project, make sure they get it done right, and if it’s not getting done right, why. So right now, the whole process is so painless and easy with WPCurve.

[12:26] Dan: Because it’s an entrepreneur’s forum, I think everyone gives you an advice from an entrepreneur’s point of view. So it wasn’t so much that, “No, I would use this service.” It’s like, “No, it’s a bad idea. You can’t do I’m limited and it’s going to be too expensive. How do you do 24/7,” and all that kind of stuff which is just fine except at the time I was two weeks away from running out of money pretty much. I have to get a job so I had to launch it no matter what people say anyway. So I just launch it anyway.

[12:52] Lorna: My god, the threat of having to get a job is like to put a fire under your ass, right? Like, “No, anything but that.”

[13:02] Dan: I got a few signups from the DC which is cool. I’ve been doing a lot of content building and e-mail list and a lot of the original customers came from there then we just try to do a good job with them and try to get them referring and doing a lot more content. I just kind of snow balled from that.

[13:16] Lorna: Wow. It’s really cool to see how many people have actually started their businesses using the Dynamite Circle community as their way to validate business idea.

[13:30] Dan: Well, yes. We’ll talk about validation later on. I think what I did right is launch quickly and that’s sort of my thing now. When we’re launching new products or ideas, we don’t validate before we launch them. We launch them and then afterwards, we look at who’s paying us. We don’t pay attention on anything else other than that.

That’s why this worked because I didn’t believe in any of the stuff that happened beforehand. I only believe when people started paying me or they stopped paying me and that’s told us what to do next.

[13:56] Lorna: So you do “ready, fire, aim” I guess.

[14:00] Dan: Yes.

[14:02] Lorna: Once you launched and get out of the gate, then essentially, you get a handful of customers and then build your product and service based on what it is your handful of customers is telling you they need. Is that correct?

[14:15] Dan: Yes. Do you even have the handful of customers or do you have lots of customers, and are they happy to pay you? Are they telling others or getting on Facebook and writing about your service or are they just kind of paying you and not using it? Just everything that happens after that actually happens by somebody who’s giving you money is real data from real customers and that’s something that you should pay attention to.

But anything happens before that is just assumptions. All of the mistakes I’ve made in the past have pretty much tied back to making them because I’ve been making decisions based on assumptions not based on real customer data.

[14:48] Lorna: You know, it’s really kind of tough I think to make business decisions in a certain way like when you’re looking at market research models. There’s a lot of value in terms of getting a sample set that is large enough to make a statistically valid decision for example. I guess the question is one of the common ways to validate a business idea is to run a survey.

[15:17] Dan: It’s a terrible idea.

[15:18] Lorna: My god. I want to hear your experience about running surveys. You can talk about other business validation models.

[15:27] Dan: We could talk about it all day if you want. I could tell you why all of them are a bad idea.

[15:33] Lorna: Great. Surveys – all these are learned in school. When you take a business class, you learn about market research. The internet marketing gurus all say, “Survey your list, survey your list.” So tell me, how did that work for you?

[15:46] Dan: It didn’t work at all for me but I think what I’d say in general to that is like the Steve Jobs thing, the way it talks about focus groups and the fact that people don’t know what they want until you show it to them. That advice is dangerous for entrepreneurs because it makes you think, “All luck and just go ahead and be innovative and create something awesome and people buy it.”

But it’s also very sensible because what it says it doesn’t really matter what people to your surveys or in your focus groups because it would be totally different than what they actually do when you ask them for money. That was my experience. I surveyed a bunch of well known content marketers and asked them if they would buy a product that tell them what content is converting. More than half of them said that they either would or they weren’t sure.

I think something like 75% have said that they were doing a lot of content, investing significant amounts of money in it, and I didn’t know if it was actually generating business for them. So to me, that was like, “Okay that’s it. I’ve done my validation.”

[16:39] Lorna: Right. It’s big pain point, right? We’re all told that “Content is king.” Especially if you’re small business or solopreneur, the whole process of creating content can be a full time job. I personally find that it takes a lot out of me to keep up with my editorial calendar.

[17:00]
Dan:
Well, that’s the problem. The pain point there that you are describing is not the fact that you’re not getting enough revenue from your content. It’s just the fact that you don’t have enough time to do all the content or you don’t want to spend your time in doing the content. You don’t see it as valuable or maybe you’re not getting a quick enough return for your content. It could be a thousand different things, but you won’t be able to tell me in what that is in a survey or response for one.

The second problem is you can’t really predict how you would react and that’s the problem. Always people thought, “Yes, it’s a pain point for me like you just did.” But then when I sent them the data to sign up and send them the [inaudible 17:37] to pay, none of them paid.

[17:39] Lorna: How many people answered your survey and said that they would buy and then how many people actually bought?

[17:45] Dan: I probably have to dig it up but it was 30 or 40 people. None of them bought and I think about half – so it was a bunch of questions in there. I specifically asked, “Would you buy this if I solve the problem?” which is a tough question to ask because people don’t really know what your solution is going to be like. So it’s almost like a pointless question to ask.

But I think something like 10 or 15 people out of those bad list told me they would. The funny thing was, a huge percentage of people never tried the product. So these are people who told me they have this problem, but then they didn’t even try the product. What that tells you is people are very bad judge of what their problems are and how they’re going to behave and you offer yourself as well.

I thought as a content marketer – well, this is really be awesome to know what return on my content is – “Am I a very good predictor of what I would actually do? How do I previously signed up for a content marketing analytics app?” I haven’t. So doesn’t that tell me that I don’t think it’s actually a very big problem, whereas I felt it was a big problem. But if it was a big problem, I would have tried to solve it before.

So that’s the risk of surveying people. They’re kind of out of touch with how they would actually behave and what their core problems are. Once you asked them to take their wallet out, the people who do take their wallet out are the ones you really should be listening to, but the people who don’t they’re really not worth listening to in terms of validating your idea.

[19:00] Lorna: Yes, totally. I just knew that when I launched my survey, I got 100 response which is pretty good statistically speaking. Nine of those respondents actually bought the product. But I spent weeks slaving away to create that product and I was just like, “I can’t live off with this.”

[19:19] Dan: What was the product?

[19:20] Lorna: It was a product about mentorships. My audience, basically, indicated that the one thing that they really wished that they had [inaudible 19:28] was mentorship. So I created a product on how they could attract the right mentors to help them in your business. It’s really hard to say, “Okay, well, I’ve got a solution. X, Y, and Z person should be your mentor or I can be your mentor.” Every person’s business in industry is quite different.

So I found that I’ve attracted a lot of great mentors in my life but I want to reprocess of figuring out who was a great mentor for what and who can help me for how long. Basically, I pay business coaches. There’s other peers that help me, but I can only after be very respectful of their time. There are mentors everywhere, essentially.

But I think for a lot of people who feel very alone especially if they are solopreneur, it’s easy to feel like you’re just trying to do everything yourself and there’s actually help around you at all times. I think the product could have more potential , but I think I got burned out on the amount of effort it took me to create the first data and whether or not I could actually see myself continuing to generate a viable income off of it.

[20:40] Dan: Is it a recurring or one off download?

[20:42] Lorna: It’s like a one off download.

[20:44] Dan: [inaudible 20:44] price point.

[20:45] Lorna: The starting price is from $17 and it was series of audio recordings.

[20:50] Dan: There’s a few things there. One is just the simple fact that a $79 one off purchase is a totally different thing. We’re doing $70 a month which is…

[21:03] Lorna: That’s the beauty of recurring income. How do you do something where it’s you have this description-based model, where people actually feel that it’s worth keeping their payments going? So one of the questions about trying to resolve is, “Okay, I’m in a process of building a membership site because I have a lot of content that’s useful to my audience, but then how do I keep driving you’re offering value whereby the numbers feel like they’re getting something out of the monthly recurring?”

Prevent them from paying just like for the first month downloading everything and then exiting. How can I offer continued values? Do you have any advice on how entrepreneurs can do that can setup recurring revenue streams?

[21:45] Dan: Yes, lots of advice. It depends on a lot of things. The first thing I’d say is getting someone to sign up to recurring is totally a different than selling a one-off product. A one-off product might be a good idea to validate that they are prepared to spend money and then not just totally wasting your time. But to build a business out of a $79 product is very difficult.

Once you get on the recurring path, you’ll find you have a whole new set of challenges. For one, it’s just getting paid for the signup because people don’t want to sign up for an ongoing fee for something. So you rule out 99% of your audience, and that’s fine because it means that you deal with the 1% who are prepared to pay you every month. We have a community as well and we’re going through the same.

It’s really hard business to work with the community because – what you describe is a little bit different to a community but it’s got those aspects. The [inaudible 22:31] tends to be pretty high, and people are constantly getting invoiced and reminded them that they’re paying for the service. They really need to be using it, which I think with WPCurve what we’re doing retention wise is to make sure that people are using it. We’re getting really smart about that now.

We’ve only just started to realize that these people who haven’t used it for a couple of months and those are most likely people who are going to turn. So we’re going to make sure are using. With the community, it’s not all in your control. A lot of it’s in the hands of the members and a lot of people just don’t activate in communities. They saw it up and think it’s a good idea. For whatever reason, they don’t activate which makes it I think a much harder business model.

[23:11] Lorna: So how are you guys attempting to continue to offer value month after month in your community? What are some of the ideas that you are implementing on that?

[23:19] Dan: Every two weeks, we do a call with an entrepreneur. This week, we talk with Chris Ducker and we talk to Sean Ellis. Sean is the guy who came up with the term “growth hacking.” He was responsible for the growth of companies that are multiple billion dollar companies like Dropbox and other companies. Some of these dudes are pretty well known entrepreneurs.

So we have a call every two weeks where the members can come on and join that. We also have an online community, which we’re trying to get more active. It’s just a challenge. It has a lot to do with how many members you have, too. So I think the other thing we’re trying to do is just make a strong push to get more members because we sort of feel like we need to get about 100 members before it becomes a really active community.

The thing it’s a pretty tough business model and I think it’s like something that you probably should not attempt unless you got a reasonably big audience. I don’t know if ours is big enough. I think we’re probably right on the cost. I think something like a community, you probably need to raise an audience. You need people who are going to be active and you probably need at least 100 members I reckon to.

I found that well of the half will be like regularly active in there. With our cost, we’re probably getting 10 to 20% of members sign up to those. If you have a 100 members, you are already talking about sort of 30 or 40 people who are really active. So I think that’s probably a good number.

[24:42] Lorna: I see, okay. So in terms of 100 members, then how big of an audience are you suggesting would be big enough to be able to get the 100 members?

[24:52] Dan: I think it depends on a lot of things. Our e-mail lists about 6,500 to 7,000 people. People have come from all over the place to get on that list and we don’t really know a lot about who’s on there. They’re all people who’ve read our content and lock it in there and engage with us, but we’re not solving a really specific problem for them. It’s a general entrepreneur business growth forum.

I’ve got friends who’ve run out of the forums like Troy at WP Elevation is solving a specific problem for WordPress consultants. Renan Dunn is solving a specific problem for freelancers who want to build their own products. There’s a whole bunch of people doing it.

There’s obviously a really good example going out of [inaudible 25:29] entrepreneurs who are probably a very good fit for the community because they’re traveling around and they probably want more connection with people. So, yes. I haven’t really answer your question. I think it depends too much on what the community is. But the general community, to get 100 members, I think you’d probably have to have 5,000 or 10,000 people on your e-mail list as a rough guess.

[25:47] Lorna: Interesting. Wow. So let’s talk about some other [inaudible 25:51] of validation models. What are some of the other ones out there that tend to be commonly endorsed as effective market validation strategies and which ones have you tried?

[26:04] Dan: I tried all of them. I don’t like any of them except if I’m just starting.

[26:08] Lorna: Okay. So give me a list of some of these that you’ve tried to cover surveys.

[26:13] Dan: I guess I attempted minimum viable products. I’ve attempted pre-selling. When you talk about pre-selling because that’s one that people put out there as the ultimate solution to validation. The problem with pre-selling is people do something like, “If you join my community, I’ll give you lifetime access and I’ll charge you $100 for that.”

It’s like, “What exactly are you testing?” Just lean startup in general, the whole point is validating your assumptions based on data. So it’s creating a test and working out what the result is for that test. So if you tell someone, “You get a massive discount and I’ll give you lifetime access,” not only are you completely preventing that person from purchasing from you ever again which is crazy because they’re probably your best customer, but you’re also offering them a deal that you’re not offering anyone else.

So all you’re really testing is their desire to take you up on this deal but you can’t repeat anywhere else. You’re not validating anything really. You’re just getting a bunch of money, which is fine although ethically probably questionable in some cases maybe even legally questionable. But it’s not really validation. I think it really depends on the product but I think most things you can actually launch a lot quicker than you think.

With the last three IBs we launch, we launch the more within one week and that includes WPCurve, our community, and a WordPress plugin. I know other people have launched [inaudible 27:43] within one week. I guess we’ll talk about that later with the seven day thing. I think if you can launch quicker and then just start making decisions based on actual data from real customers, then that’s really the only validation.

Everything up to that point is assumptions. There’s a rough chance they’ll be right but in my experience, almost all of the time they’ve been wrong.

[28:00] Lorna: I think also the pre-selling thing tends to work if you have a list of people to pre-sell, too. I think for a lot of early stage entrepreneurs, they don’t have an e-mail list or maybe they do have an e-mail list but it’s out of their personal address books, so that’s not really a good starting point, right? So how do you pre-sell something if you have no one to pre-sell it to?

[28:22] Dan: Well, yes. The thing is that everything is easy once you’ve got an e-mail list. So I think it’s a good idea that’s why I like content marketing so much it’s because I was able to build up an e-mail list while I was working on my first software product. A year ago, the product wasn’t going well but my content was going well, and I was getting a lot of e-mail opt ins. Then when it came to launch in WPCurve, I had a list to market to.

So I think that’s the important thing to do no matter what way you’re approaching your business, it’s definitely a good idea to have an e-mail list. Everything becomes easy when you got an e-mail list; validation is way easier, launching your products is easier and getting feedback getting testimonials for your product. Everything is just much easier when you’ve got an e-mail list.

[29:00] Lorna: Even if your e-mail list is not related to your new product or company?

[29:03] Dan: Yes, for sure. We launched that community in seven days, right? In that seven days, we want a landing page and we wanted that landing page to have some proof elements built into it. Now, we can’t have testimonials from current members saying how good the community is because the community doesn’t exist. But we can have other proof elements.

So we’ve got things in there like comments from people about [inaudible 29:26]. So we built that page around We’re Two Guys, Starting this Community, This is Who We Are, Will You Join Us, Become a Founding Member and all of that. We had 15 testimonials on that landing page and some of them from really well known people, and all of them is saying good things about me and Alex.

That all comes about by having an audience to talk so even if that audience really has nothing to do with the community, that was still useful for us in that case, so just give us some testimonial that kind of lifted a proof on the page.

[29:58] Lorna: So you can take an old link of endorsement and put it on your page or do you actually go out and solicit brand new fresh testimonials?

[30:07] Dan: You can do either. We ask people who knew fans of that content or run on your e-mail lists or who’d previously said nice things about us but on a different context. We want [inaudible 30:17] this community, can we have just a sentence saying what you like about us? It really easy for us to get 15 testimonials in a week.

[30:24] Lorna: I love it because testimonials really build trust. I think a lot of people get a little hung up about how to get testimonials, but it’s actually a lot easier than you think.

[30:34] Dan: Yes and again it’s easier if you got an e-mail list and I know some people listening might not have that. But if that’s the case, then at least they’ve got one [inaudible 30:41] action item on episode which is to go and sign up on [inaudible 30:44] start an e-mail list.

[30:44] Lorna: So in terms of other startup validation models, for those that don’t have the e-mail list, I’ve come across this advice which is “buy the traffic.” So either run Facebook ads or buy Google Adwords, Pay per Click in order to test your product idea. Have you tried this? Have you tried buying traffic and how does that work for you?

[31:07] Dan: Didn’t work.

[31:08] Lorna: My god, really? Tell me why.

[31:11] Dan: All right, the theories. The people that [inaudible 31:16] the Adwords are the bigger companies who really have their metrics sorted out. So if I’ve got a company that’s got 10,000 customers and I know exactly what my lifetime value is, and I know exactly what my on page conversions are, then I know exactly how much it costs me to acquire a customer and how much more that is and how much there were.

So let’s say, I converted 10% of my page and cost me quick is $5. My Math isn’t very good. So let’s say, that’s $500 to acquire that customer and I know the customer is worth $1,000 to me. I know that because I’ve about 10,000 of them, and I’ve been in business for five years. Of course, I would spend the money on Adwords. So in doing, I would know that it’s money well spent. But if you don’t have all of that data, then what exactly are you testing?

You’re sending traffic to the page, but you don’t know if it’s going to cost you more to acquire that traffic than their worth to you because you don’t know what your lifetime value is. If you’re paying $5 quick and you’re converting 10%, it costs you $10 and $500 per customer, then does that mean that your idea is valid?

Well, it depends on your turn and it depends if you can upsale over time or how many customers they are going to refer as a result of being your customer and how much growth that’s going to result. You don’t know any of that stuff when you’re just starting out. That’s part of it.

The second part of it is Adwords is so expensive now. When I first read about this idea was in the Four-Hour Work Wage, but it’s probably 10 years now. I don’t know when it was written but it was probably 10 years old, is it?

[32:39] Lorna: I think it was something around 2006 maybe. Yes, I recalled. I remember that everyone kind of jumped on the Four-Hour Work Week and started running to hire in the NVAs.

[32:51] Dan: That’s it. It’s kind of good content at the time but as time gone on, things have changed and especially with something like Adwords. It’s so expensive now on Adwords. The whole landscape of paid advertising has changed now. With things like retargeting and just SEO and the cost of SEO and the change is there. Everything has changed so much that Adwords is so expensive. I mean, it’s not cheap to get a whole bunch of traffic and send them to your page.

The other thing is what exactly are you testing? A lot of people would buy traffic and send them to a landing page for an e-mail opt in like a prelaunch page and say “Enter e-mail address if you want to be notified when we launch” or something. That’s a horrible idea because all those testing is whether or not someone will enter their e-mail address. It’s not testing whether or not they will buy.

What I found is that you will convert a lot more people on that presale page than you will even when you’re product’s live because it’s a much less friction for someone to enter their e-mail address. It’s a much less commitment for them to do that than it is for them to actually go through the process of paying, of signing up, testing and installing your product, or using and activating.

So your conversions will go down either way after your launch which is what I found. Anything that happens before that when you don’t have the information, I think, is just – I mean it hasn’t work for me. To me, it comes back to, “What are you testing?” If it doesn’t feel like you’re testing the exact experience that you’re going to offer when you launch, then the test is invalid and it’s not worth doing.

[34:13] Lorna: Yes. Gosh, it’s almost a chicken or egg scenario, too, because you’re not going to get the data that you need unless you actually test it on paid traffic. I can see where you’re coming from where if you invest in that paid traffic as it gets important to be really clear as to what information you’re trying to get. I think to be able to have something that you’re going to offer to sell rather than using the paid traffic to increase your e-mail list.

I think there’s internet marketers that might disagree with that. I think there’s a lot of internet marketers out there that actually do that as a traffic building strategy. It’s very tempting because how are you going get traffic if you don’t have any to begin with? But I think it can be a slippery slope because unless you know what you’re doing, you can spend a lot of money.

[35:00] Dan: I think people don’t realize how hard paid traffic is. If you’re a paid traffic expert then cool. That’s like saying, “I know nothing about writing a blog and I’m going to get my traffic by putting up a few blog posts, and I’m going to get 10,000 visitors by doing that.” That sounds ridiculous to someone who’s spent a decade writing content. I’m sure someone validating their startup with Adwords who’s never used paid traffic before sounds ridiculous to someone who lives and braves paid traffic everyday.

[35:30] Lorna: Absolutely. That’s somebody’s full time job. Adwords is somebody’s full time job. Facebook is another person’s full time job. Sometimes, we get somebody who does everything. Yes, just one aspect of paid traffic is easily one person’s full time six-figure job.

[35:46] Dan: The thing is that any of these things are actually really hard even with an established business that actually really hard to pull off and do profitably. If you think about Facebook Ads or Google Ads or conference presenting or content marketing, really any form of marketing – even if your business has got a proven product market fit, it’s still very difficult to work out a scalable way to do this marketing activities after your launch and after you’re already established. It’s not easy. To try and do them before when you don’t know any of the numbers and try to get some real data about it, it seems crazy to me.

[36:23] Lorna: Okay. So we mentioned minimum viable product and that is basically a concept that comes out of Eric Ries’ book The Lean Startup. Is that correct? Who coined that term? Do you know?

[36:34] Dan: Yes. As far as I know, he got lot of his stuff from Steve Blank. He’s almost a book hero. I’m sure someone listening will know the book that Steve Blank wrote before The Lean Startup, but I think it was pretty academic. If you don’t consider The Lean Startup to be academic, but I think Steve Blank’s book was even more so academic. It think Eric Ries was mentored by Steve Blank and talk a lot of those ideas and put them into practice to design company, and then applied some of those learning as in consulting in a bunch of other companies.

[37:04] Lorna: Tell us what a minimal viable product actually is.

[37:06] Dan: I’ll tell you what it’s not to start with. It’s not a really crappy version of your product, and that’s I think what people think it is. The problem with that is no one wants to buy a crappy version of your product, so good luck validating with that. I think the minimum viable product is the least amount of work you can do in order to get a customer and start getting data from that customer. Maybe I need to come up with a better word out of data.

I’m not talking about scientific experiment that made a certain amount of responses to be valid. I’m just talking about having a real customer to pay you. Therefore, whatever they’re telling you or whatever they’re doing probably more to the point is something worth paying attention to – so the smallest amount of work you can do to get a paid customer.

In our case a minimum viable product was me with the fan very close to my head as I went to sleep at night, the live chat app on the phone, and every time it buzzed, I would wake up and chat to whoever is in the other end because my idea was 24/7 WordPress support. I couldn’t test that idea unless I offer 24/7 WordPress support.

[38:14] Lorna: My god, is that why you’re so responsive?

[38:18] Dan: Not now.

[38:19] Lorna: Because you don’t sleep?

[38:20] Dan: Yes, it wasn’t the first month before Alex came on board.

[38:24] Lorna: That sounds crazy making.

[38:25] Dan: Well, I knew it was going to be temporary. It was kind of fun either way me and Alex because I did have a big problem at the time where I just didn’t want to sleep with my phone on my head anymore. He came along and solved that for me. I was planning on hiring a developer over that side of the world because I have developers on this side of the world.

It’s fine. I mean, for three weeks or something, it was a very good where I’d test the actual service. People could think I [inaudible 38:48] our minimum viable product might be, “We offer 24/7 WordPress support but we don’t actually offer that right now. You can just sign up for half the price, and you can only get business hours WordPress support.” Then we’ll see how many people sign up.

The problem with that is again, what are you testing? You’re not testing the offer. I want to test the actual offer. This is how much you have to pay. This is what you get, and I wanted to replicate that offer in the cheapest and quickest way I could. I could do that within three days by putting up a very cheap WordPress site and by having a free live chat app from my phone.

[39:18] Lorna: But that worked. So it seemed like your minimum viable product for WPCurve was a startup validation strategy that worked for you?

[39:27] Dan: I guess my point is that I launched in three days. The validation, if you want to call it, that happened after I launched. That’s my problem with validation is if you’re doing it before you launch, then it’s a problem. But if you’ve launched and you’re trying to work out whether or not you’ve got product market fit, then that’s kind of a different question.

Normally, when people talk about validation, they’re talking about validating the idea. But after you launched, it becomes a matter of finding product market fit, which is like what are you offering, how much you’re charging and does the market want to pay that, and where’s the sweet spot for you to see it. That’s not really validation. It’s not really validating an idea.

My idea would have been invalidated I guess if I launched and I was live and I didn’t have any customers, then I think I would have invalidated my idea. But I don’t think I have really validated it. I think I just launched, gradually improve the service, and gradually found that product market fit and we continue to do that.

We’re confident now we’ve got a good business but it’s just the continuing process of making sure what we’re doing is what people want for the price that they have to pay for it.

[40:33] Lorna: It seems my take away from this conversation with you, given that you’ve tried so many different ways to validate the market, is to just frigging launch the product first. See what sticks.

[40:43] Dan: That’s it. Actually, I’m writing a book about it. I’m writing a book it’s called The Seven Day Startup. So if you do want to learn how we launched these things quickly, then that’s my point of view. I just think the rest of the stuff is not really testing the right information. Most things you can launch in a week. Some things you just literally can’t.

But most of the stuff we’re talking about like kind of bootstrapped companies that we talked about, the communities, or the small software apps, or WordPress plugins, or service-based stuff, you can launch them a lot quicker than you think if you think about, “What is the easiest way for me to get this to the customer’s hand?”

When I think about my last company which was a software app, I could have launched that in one week as well. I could have not built the software app and just gave people a login, and when they requested a report, put up a message sign “Your report will be delivered in one hour.” I could have sat there manually work on the report. I would have achieved the exact same thing that I achieved after 12 months and about $60,000 by telling me the idea wasn’t a good idea.

[41:45] Lorna: Here’s the key though. You just freaking get your product launched [inaudible 41:52] and launch it but to whom? Where do you find your customers?

[41:54] Dan: I think it’s going to depend a lot on – like for me, my skills set is content so what I would do is probably a lot different than what someone else would do. I could probably give you answers from both people’s point of view. Say we launch a WordPress plugin, what I would do is go out for the next month after I launch and I’d write – I probably set myself a really aggressive goal. Like I’d probably set myself a goal to write maybe 100 blog posts in a month.

I’d put them on a whole bunch of ad, maybe 100 pieces of different phone and content interviews like these and blog posts. I’d put some on my own blog. I’d put most of them on other people’s blogs. Then, I’d be pretty confident that within a month, say three weeks after I launch, I’d have enough traffic to work out whether or not anyone wants to buy my stuff.

What my co founder would probably do is go to every startup event in San Francisco and talk to many people as he possibly could in that space. He’d try to build relationships with the people in that area and try to leverage that audience already. When we work together, it tends to work well because he’ll go out like he went to this show and I was made up the other day. The growth hack was made up.

He’ll get up the front and hustle his way to get insurance base and ask him to come on our podcast and all I’m going to do was the content for the podcast. So I think it’s a matter of building what you do. For me, content. For my co founder, it’s hustling face to face networking. For someone else, it might be paid traffic. It might be just ringing people.

I think as long as what you’re doing comes from a point of I’m trying to get customers for this company that exists already, then I think you’ll find that you get a return pretty quickly on that work. The problem is, I think what a lot of people do is what they’re doing is not aiming at getting customers to pay them for what they’re doing. It’s something else like it’s trying to build an audience or it’s trying to build networks or whatever.

If you want within a month after launching, you want to get enough people to buy your product, then you’ll be focused on doing whatever it is to get people to pay because your focus changes from “do you think this is a good idea” to “will you pay for my product.”

[43:52] Lorna: So you would launch the product and then write 100 blog posts and get them all placed in different higher traffic blogs to try to drive that targeted traffic to your site.

[44:01] Dan: That’s what I would do because that’s the way I found that I can do marketing. It’s the only [inaudible 44:06] of marketing that can do that, so that’s what I would do.

[44:11] Lorna: So I just want to be able to wrap things up. I have some questions from the audience/pin-up gallery. So first off, in your entrepreneurial journey, was there one mistake that you made that if you had the chance, you’d do differently?

[44:24] Dan: Acting on assumptions. It was every mistake I made.

[44:28] Lorna: Great. Questions from Our Shared Community. Mat Newton of Web Agency Podcast wants to ask you where you find your web developers for WPCurve?

[44:39] Dan: We have two different places in the world where we hire developers. We’ve got developers in South America who look after that side of the world, and we got developers in the Philippines to look after my side of the world. My first developer was with me with my agencies for about three years. He’s a GUM developer. He’s our lead developer. The others have either come by e-mailing people by job boards in the Philippines, so I’m signed up to BestJobs.ph.

When we need a new developer, we’ll go on there. I’ll set all our requirements. I’ll e-mail a bunch of people that look suitable. Normally, more than you’d think. I don’t just e-mail one person. I don’t sit there and wait for applications. I’ll e-mail a bunch of people, will offer all of them a trial and it would be a paid trial.

Again, it’s a matter of what you’re testing. If you interview someone, what are you really testing? You’re testing their abilities to talk to you. But I want to test is whether or not they can do the job. We make them do the job, and we pay them for it. If they can do the job, they get the job.

[45:35] Lorna: Yes, it’s a really great way to do it. I’m going to hire offshore contractors. I usually have them do some kind of little tests that indicates that they have the skills to do what I’m trying to hire them for. [inaudible 45:46] otherwise, you can waste a lot of time in people that aren’t really a good fit.

[45:51] Dan: The other thing that we do is we’ve got a set process that it the exact same process that every developer goes through. So our lead developer went through it and all of our other developers go through it. We’ve got a score that we give people based on how well they go. We’ve got here like a traffic light system where they meet a particular task. Either they do it correctly or they didn’t or they didn’t get to it or they kind of half-did it correctly.

Based on that, we’ve got scores for all of our developers. Not only can we look at how they performed in the trial, but we can look at six months down the track when we really know whether or not they’re one of our best developers or they didn’t make it. What was the score in that initial exam and what were the questions that worked and how did that benchmarked against whoever’s doing the quiz at the moment.

[46:29] Lorna: Is this public? Can they all see each other’s scores or is it just for you guys?

[46:35] Dan: It’s just for us. I’m sure that they don’t even know we’re scoring it. We just give them a Google doc that says, “These are the 15 tasks. Get through as many as you can and ask us on Skype.” We’re testing every aspect. We’re not just testing “can you do programming.” We’re testing what they would do on the job which is these are 15 small fixes, you have to do them, you have to write development notes, you have to communicate with our project manager while you do the tasks.

It’s an exact replica of what would happen on the job. So a test for all sorts of stuff. It tests for how reliable their internet connection is and whether they have blackouts all the time. It’s not just a skills test. It’s testing what they would do on the job, which is I think why it works.

[47:15] Lorna: So Chris Kirkland of Artweb.com wants to ask: Have you measured any correlation between the growth of your businesses and the growth of your beard?

[47:26] Dan: I have. I’ll release a post on it and you can find that on my site. It’s actually really funny because I shave my beard about three or four months ago. We’re still been growing and things are going well but I haven’t been like a safari like the first month of the year or in the last year. So I do think there is a massive correlation.

There is a blog post on my site that talks about the revenue growth versus the beard growth so you can check that out. Definitely, start growing a beard if you want to grow your business.

[47:58] Lorna: Josh Plotkin had a life changing shamanic experience in Brazil over Christmas that has shown him the power of beards. He’d like to ask you whether your beard is your source of power.

[48:10] Dan: Yes, absolutely. It’s the answer.

[48:13] Lorna: Okay, cool. Is what you’re doing right now part of your life purpose? If so, how is it just express your life purpose and if it isn’t, then what is your life purpose?

[48:24] Dan: I don’t know about life purpose. I might not think about that enough to give you a good answer but what I love doing is creating or even more is inspiring other people to create. I think we do that. We do a lot of content. We help people with their sites and get them to create more content. We try to inspire people with our guests.

We interview and get them to think about how they can improve their business and create better things in the world. So I think we do it at a scale which is about one in 1 million of what I would like to do it at. So I think we’re doing the right things but I would definitely prefer to do it at a much bigger scale.

[49:00] Lorna: So how can we best get in touch with you?

[49:03] Dan: Check out StartupChat.co and on there we have a live podcasts every week. We have the community I mentioned. We’ve got interviews on there with some amazing entrepreneurs, Neil Patel, Charlie Hun, Chris Ducker, Sean Ellis, and guys like that. If you’re interested in this entrepreneurial stuff, check that out otherwise, WPCurve.com is the WordPress business. My e-mail is dan@wpcurve.com if you want to ask any questions.

Lorna: Okay, great. Thank you so much.

Dan: Thank you. It’s been fun.
[END OF RECORDING]

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Lorna Li

Chief Evolutionary Officer at Entrepreneurs for a Change
Lorna Li is a business coach, entrepreneur and Amazon rainforest crusader, with a passion for green business, social enterprise, and indigenous wisdom. She helps changemaking entrepreneurs harness the power of the Internet to reach more people and make a bigger impact, while designing the lifestyle of their dreams. She is an Internet marketing consultant to changemakers, and works with innovative tech startups, sustainable brands, social enterprises & B-Corporations on SEO, SEM & Social Media marketing.
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  • Thanks for having me Lorna had a great time.

    • It was a pleasure having you! Such a great conversation about the deadly pitfalls of the 4 top startup validation strategies entrepreneurs have been told to use. At least we’ll know what we’re getting into.