In this episode I’ll share with you the one critical decision I made back in 2009 that really changed how I think about building companies – and that dramatically boosted my revenue and net worth as a result.
I’m going to share two stories with you in this episode to demonstrate why this advice is so critical to the future value of your business.
First, how we pivoted Interspire (a one-time revenue business) to BigCommerce (a SaaS recurring revenue business) back in 2009. Second, how I started an online training company and pivoted that from courses to a membership subscription business which grew to 7 figures of annual revenue within 60 days.
If you’re struggling to get new customers or clients at the start of every month, you need to tune in. The way you’re selling your products needs to change and this is exactly how to do it.
Good afternoon, good morning, good evening depending on where you are in the world. I was just looking at the stats from episode one to figure out where people were and this is episode two of Insane Growth which is my podcast that’s really for founders and entrepreneurs who want to build their businesses faster, who want to have more fun along the way and who want to avoid mistakes and get to where they’re going faster.
So the title of this episode is The Nine Figure Decision and basically what I want to talk about today is one critical decision that I made back in 2009 that really changed how I think about building companies and since then I’ve probably built about five companies and they’ve all ended up arriving at this model in terms of how we sell the products and how we monetize things and so that’s what I want to share with you today. And the model is not a surprise. It’s very simple.
There’s probably millions of businesses that just implement this one model in terms of how they sell their products and there’s a really good reason they do it and that model is switching from a one-time payment model to a subscription model and you can switch your entire business or you can start small and start adding subscription revenue to your business.
So what I want to do is talk about the pros and cons of moving to or adding a subscription component to your business and any business can add some sort of subscription component or recurring revenue which means you get paid every week or every month, which is most common, or every year even where you essentially.
You might sell a year of membership or subscription and you give two months free. So I’m sure you’ve seen those models, I’m sure you are a member of many products or services that sell by the month or sell by the year but I wonder if you’ve ever thought about applying that model in your business? Now if you’re in SaaS, which is software as a service, or any kind of consulting or anything like that, I’m sure you already survive based on subscription billing or recurring revenue, which is great. Congratulations, you’re running easily in my opinion the best, most reliable and scalable business model in the world.
And if you’re not then my goal with this podcast episode two is to convince you to seriously think about either switching completely to a recurring revenue model or starting to implement that into your business and we actually spoke about this on one of the Inner Circle webinars maybe about six weeks ago and I was running everyone through the model and how to think about adding it to your business if you don’t already have it. So we’ve got the replay up in the archives. If you are an Inner Circle member listening to this, go back and watch it.
If you’re not then listen to the end of the podcast and I’ll tell you how to apply to join which is … Inner Circle is my little community for founders and I mentor them and we work together to grow their businesses and scale things up.
So why don’t we start with a story? I’ll tell you two stories, actually. Now the first story started back in 2003 which was when we launched Interspire. You may know the company, you may have been a customer and if you were, thanks very much, and essentially it was a software company and we started that in 2003 and bootstrapped it from 2003 until … pretty much about 2008.
It ran until about 2010, 2011 but we were shutting down products because we launched BigCommerce and made the switch. Now the Interspire products were all one-time payment products where you’d buy the software, and this was 10 plus year ago. You’d buy the software, you’d instal it on your own web server at the time.
There was no Amazon or cloud or anything like that and you’d pay us a one-time fee. $295, $495, $1000, $2000, and the numbers were really good but the problem with that business was that when we’d wake up on day one of every new month, we were starting from scratch and so it didn’t matter how effective our marketing was, we had to keep spending to acquire new customers and bring in more revenue, otherwise we’d stay at zero for the month.
And so we did that from 2009 until, as I mentioned, about 2008 and we grew that company to about seven million in … It wasn’t annual recurring revenue but we grew it to about $7 million in I think it was 2008 and that was great. It was generating a lot of profit, we had a team of maybe eight people, ten people, something like that and it was a lot of fun. We had a great culture. We would work kind of 9 a.m. until maybe three in the afternoon and then go down to the beach and hang out at Bondi here in Sydney and then come back to the office and work from 10 p.m. until maybe 2 or 3 a.m., play some video games and then head home, sleep and wake up and do it all again the next day pretty much six or seven days a week and I was … What was I at the time? About 21. Yeah, 20, 21.
I’d sold a company before that and this was my second … Yeah, second company and we had a lot of fun but then it got to the point where it was such a slog to bring in additional revenue every month and so to cut to the chase, what we ended up doing was taking our two most popular products at the time, which was Interspire Email Marketer and Interspire Shopping Cart and we said, “SaaS is big. Everyone likes subscription models and paying for software by the month. Let’s launch two SaaS companies.”
So we launched Email Marketer as bigresponse.com, so response as in get responses to your emails. It was an email marketing platform kind of like MailChimp or the good folks at Campaign Monitor and then we launched BigCommerce which was the SaaSified or hosted subscription version of our Shopping Cart product and if you know anything about me and my history, you know that BigCommerce went on to become a gargantuan nine figure company and at the root of building such a large successful company so quickly, tens of thousands of customers, approaching nine figures in revenue, a great nine figure valuation, raised about $165 million so far from investors, the decision … The embryonic decision that we made back in the day was to shift from one-time revenue to a subscription model and that transformed the company at the time.
So all of the Interspire products we had, we shut them down, we discontinued them over about a two year period. BigResponse, when we launched that, the email marketing product that was SaaSified, it did okay but BigCommerce just knocked it out of the park. We ended up with 9800 paying customers in the first year that were paying about $30 a month and that was all bootstrapped, so we were generating serious, serious revenue. Let me work out what that was. Let me just type it here on my computer.
So that was about $300,000 a month in revenue. So what’s that? About $3.6 million per year after year one give or take. I’m rounding numbers here. And so that really got me onto subscription businesses and recurring revenue and they’re slow to start and the reason they’re slow to start is because you don’t know your lifetime value. You don’t know how much someone will pay you over the time they’re with you. You also don’t know how long they’ll stay with you for. So it makes working out your metrics really hard. You’ve got to benchmark and use industry averages which are not always accurate to your specific business depending on what you’re selling.
Now the other challenge with subscription businesses is that you have to fund your customer acquisition cost up front which is how much you spend to get a customer but then you’re earning the revenue they pay you instead of one hit up front where you can cover your acquisition cost and your marketing spend, you’re earning that over a few months or maybe even over a few years. So they can be very cash intensive to start. So what I always like to do is build a company, whether it’s consulting, one-time software like we did with Interspire, courses, an agency, whatever it is and I like to use the cash from that business, and I’ve written about this on Medium a few months ago, to take the cash from that business and fund the first two or three years of a subscription business until it’s breakeven and can scale and by that time, you understand how much it costs you to get a customer, how long they stay with you for, how much they pay you per month, your churn rate, all of those SaaS subscription metrics and if you don’t know those metrics, go to forentrepreneurs.com, f-o-r, forentrepreneurs.com.
David Skok runs an incredible blog. He’s from Matrix. He’s kind of one of the SaaS godfathers and he will break it all down for you. There’s some great posts up there and they really helped me early on when we were making the shift from one-time revenue to subscription. So the second story that I wanted to share has kind of played out over the last 12 or 18 months. Most of you know that I’ve been consulting with and coaching and advising and mentoring founders and entrepreneurs since about 2011.
Started here in Australia doing it just for fun, for free because I love to and then as I stepped away from BigCommerce about 18 months ago, I realised that it was something I loved, that I was passionate about and that I could make a huge impact with and so I started I guess professionally mentoring, advising, consulting with founders. Charging $5000 an hour which I do now and working with about 15 founders at once and built that up and it still goes incredibly well today and I love it and I’m very passionate about it and one thing that I kind of learned along the way was most founders, and my one-on-one clients probably don’t want me to say this, most founders have the same problems in their businesses.
They need to hire great talent, they need to figure out profitable ways to acquire customers and they need to scale up faster and so I would take my learnings from the clients that I was working with, mentoring, advising, consulting and I would see into their businesses and I’d just take the main problems that all of them had and I started building courses, online courses using Kajabi which is a hosted course platform and those courses were really, really great ways to encapsulate key lessons that not only had I used to grow my companies in the past, so I’m at seven companies now, about $200 million in total revenue from those companies so far, most of that coming from BigCommerce and Interspire, they’re my two biggest companies, and I would take those lessons and build them into courses.
So the first course I launched about 18 months ago was … We initially called it Startup Growth Blueprint and then we realised that was kind of limiting the market of founders who would enrol in the course and buy the course and so we renamed it to Revenue Growth Blueprint and then we were having a lot of success with funnels and marketing automation and Facebook ads and retargeting and everything like that to build these huge audiences of founders that were buying my courses and they weren’t cheap. They were $1400, $2000 per course, five or seven weeks of intense online training, me direct to camera, worksheets, templates, all that stuff and you can’t get the courses anymore, you can only get them as a bonus when you join Inner Circle which is my mentoring group. So I have nothing to sell here in terms of the courses but they did incredibly well and so we launched a second course called Conversion Method which was all about how do you take cold traffic, warm it up using inbound marketing, retarget them using Facebook ads, Google Display Network, turn them into customers, scale them up and repeat that process for a subscription company primarily but also for any business?
And that did insanely well, that course. I think we sold that for $1497, so about 1500 U.S. which is about 2000 Aussie. Again, a five week course all online. This one wasn’t me direct to camera, it was essentially me … More like a webinar format where we had slides and I would go through and teach everyone things and show them our campaigns, take them behind the scenes and that worked really well. But again, those course were one-time revenue. So someone would come and buy a course and learn a lot and send me great compliments and everything like that but they were paying once, a $1500 fee or a $2000 fee to get that course for life and that was great because it meant we could reach and help hundreds or thousands of founders, I haven’t checked the stats lately on those courses and they did really well but at the start of every month, we’d look at our marketing budget, we’d allocate some revenue from the last month and spend that on marketing and we were essentially back to square one.
And so realising what I’d learned shifting from Interspire and pivoting essentially that to BigCommerce to become a huge nine figure company and keeping that lesson in mind, I said, “Hang on a second. There’s a lot of great things we can teach founders based on my experience and all the founders that I know in my network and the companies I advise, I’m on the boards of, that I invest in. Instead of building a course that’s kind of one and done, how do I still live my mission of helping one million businesses grow by the year 2027?” which is my mission. “How do I live that but how do we build a business that has more predictable and scalable revenue?” Now don’t get me wrong, we grew the courses side of the business to seven figures really, really quickly, like in three months, something like that, and then my consulting business and everything, that does seven figures as well.
So there’s definitely great revenue there and we’re helping a lot of founders but I went back to first principles and said, “If I want to impact a million founders and help them grow their businesses, a $2000 price point number one is too high for most founders getting started and it’s not the founders that are well on their path that need my help the most. It’s the founders who are just getting started or who have started, they’ve got some semblance of product market fit and they need help scaling up. They need that consistent kind of source of customers and they want to figure out the marketing aspect more than anything, which is what grows a company.” Sales cures all, that is my motto. I live it, I breathe it, I’m passionate about it and that’s what I spend most of my time learning. How do you scale companies faster than what they’re already doing? Now that’s what I teach my clients, that’s what we do in Inner Circle. Anyway, I digress.
So we basically said, “Okay, let’s bring down the price point. So let’s go from a $2000 course down to a few hundred dollars a month,” and that’s when the idea for Inner Circle came about. That was probably about … It’s got to be four or five months ago now. It’s been amazing launching that, it just took off from day one. And so the price point went from $2000 for a course and as you guys are listening to this, we may change the price. I always experiment with pricing and look at conversion and the impact on retention. It’s $297 a month. So 297 U.S. a month and if you pay for a year in advance, it’s like $148 a month, $148.50 which is nothing. For any founder that wants to scale their business, that amount of money relative to the value you get, not just from the webinars we do but there’s a whole community behind it, is just insane. Dozens or hundreds of founders that are there to help you and answer your questions and share their experiences and their war stories with you.
So that’s what we did and we launched the Inner Circle a few months ago and now it’s a fully subscription SaaS business where we have the customer acquisition cost or the payback period for that down to a month based on average revenue per user. So the general rule of thumb in any SaaS business or recurring business is you want to recoup the cost of acquiring a customer ideally within six months, then you’ve got a good business. If not, within 12 months and you’ve got an okay business but then you want to optimise to bring that down to six months. We’re recouping within a month. I think it’s about 40 days at the moment and that’s trending down every single week and the reason for that is the word’s getting out, people are joining. The average founder, and this is one of the interesting things we realised at BigCommerce, the average founder or entrepreneur knows six to ten other founders, so there’s a network effect happening there, viral coefficient, whatever you want to call it and if you have a viral coefficient in your business that’s greater than one then it means for every one paying customer you bring on, you’re going to get them bringing on more and I think ours is about 1.3 at the moment and it’s going up.
Okay, so that’s really the lesson that I want you to think about. How do you look at your business if you’re not already a SaaS recurring software type business or you’re not a box a month type business? How do you bolt on some sort of addition to your product? I call them adjacent products which are products complement what you do. Maybe they’re a lower price point, maybe they target a certain segment of your market and not your whole customer base. How do you add $1 in the next month of recurring revenue to your business if you don’t have any now? That’s the challenge, that’s the clarifying question that I would ask you think about and write down every day. How do we add $1 of recurring revenue to our business within the next 30 days because you know what? If you can add $1, you can add two. If you can add two, you can add four. Four, you can add eight and then you’re off to the races and it will take a few months. You might stumble on marketing and you might try customer acquisition channels that don’t work. You might use Google AdWords and it bombs. You might email your customer base and some of them switch to the subscription product and want a refund on what they paid you on your other products. But if you stick with then you’ll get there.
The most recent post I actually put up on my blog was essentially about how to do this and that assuming when you launch a new product, you’ll fail for the first two attempts to scale your marketing, to figure out who your customers are, to collect the data and to scale that up. So make sure you go and read that if you haven’t already, that’s at mitchellharper.me/blog. But that would be the question, as I mentioned. How do you add $1 of recurring or subscription revenue to your business within the next 30 days? Because if you don’t do anything over the next 12 months but focus on building up your revenue so it’s more subscription focused than not, that will change your business. You wake up on day one of every new month and it’s not, “Where’s our first customer coming from?” It’s, “Hey look, we’ve already got these few hundred or few thousand customers that are about to renew.” Great, so on day one you make X thousand dollars of revenue instead of zero and you don’t have to go out hunting all the time.
One of the lessons I learned a long time ago is business can be about farming, which means farming your existing crops, your existing clients, looking after them instead of always hunting, hunting, hunting and trying to bring new customers in, which is actually really hard. I’m sure you know the numbers that it’s cheaper to retain a client than it is to go and get one. I think it’s seven to one, the difference, and that’s completely true and that’s why the recurring revenue model is just amazing. It will transform your business, it will give you more clarity, it will reduce your stress if you do find yourself chasing new clients or new customers at the start of every month and it just gives you that inner peace where you can sometimes … Sometimes you can step away from your business and you need to be able to step away for a holiday or to focus on a product or maybe you want to go and give a keynote speech at a conference which I don’t recommend because they never generate any revenue. But you know what I mean? You want to be able to step away sometimes and say, “I’ve got this,” and sales cures all and the best way to get sales is to not have to go and bring them in every single month from day one.
So that’s why I love subscription businesses. Most of the businesses I advise or invest in are subscription businesses. My Inner Circle which is online training is a subscription business. I’m building a SaaS company which is subscription revenue. I won’t do anything unless there’s a path to subscription revenue eventually. It doesn’t have to be from day one. I told you we launched my courses and everything and they did incredibly well, seven figures in the first year within the first three months and then we saw the path to recurring revenue. So you may not even see a path to subscription revenue right now. You might say, “Well Mitch, I sell widgets online. How am I going to move them into a subscription model?” And it might not come to you straight away but if you keep thinking about it, if you keep it in your subconscious and you write it down every morning, how do I add $1 of subscription revenue to my business within the next 30 days? You’ll find the answer.
When you set your mind a task, it will subconsciously or unconsciously go out and find you the answer and bring it back to you when you’re sleeping. I’m a huge, huge, huge believer in that. That’s what I did in all of my companies. That’s what I think about every single day. When I’m launching a new company, when I’m about to invest in a company, when I’m going to advise a company, when I take on a new client one-on-one where they pay me a lot of money to help them, I want to make sure that I can help them and the businesses that are the easiest to grow are subscription businesses. They’re also worth the most because when you think about going public or selling shares or raising money, a subscription business has a built in risk mitigator which is every month your previous customers, most of them are going to pay you again, so you don’t have to go out, as I mentioned, from day one and earn those new customers. That’s why investors love subscription businesses.
So that’s pretty much what I wanted to cover today. I hope you found that valuable. More than any other lesson I’ve ever learned being an entrepreneur, switching from one-time revenue to recurring or subscription revenue has been transformational, not only in terms of my personal wealth but in terms of running the companies, raising capital, gaining leverage, using the business to hire great talent and to drive them to a mission and a vision bigger than themselves, it’s all possible if you just think about how do I pivot from being one-time revenue to a subscription business over time? And it might take you six, 12, 18, 24 months but if you’re patient and diligent and constantly think about it and focus on it, you will figure out the path to get there.
If you enjoyed listening to this podcast, you have to come check out Inner Circle. It’s my monthly coaching program where we take all this material and we apply it into your business. We take it to the next level and we actually study it together. You’ll learn how to build your business faster, how to avoid mistakes and most importantly how to make your entrepreneurial journey fun. Join me over at mitchinnercircle.com. I’d love to have you on board and I’ll see you there.
|About Mitchell Harper
Mitch is a 7x company founder, advisor and investor. He is best known as the co-founder of BigCommerce. His companies have generated over $200,000,000 in total revenue and he is currently building an online education company and a SaaS company.