The other day I realized that my team and I have grown two separate products (HelloSign and HelloFax) from $0 to $1 million in revenue. While it happened a long time ago, I was recently reflecting on the lessons I had learned.
While building our B2B startup from the ground up, I found a lot of growth truisms to be false. Some lessons were painfully won, which is why I am strongly opinionated about them. While these lessons are based on our B2B products, I wouldn’t discount them for B2C companies.
Here’s a look at key lessons we learned growing from zero to $1 million in revenue:
Charge for your product as soon as possible.
Every founder I talk to has a good reason for not charging for their product, and it’s usually a bad reason. I remember having office hours with Paul Graham: we explained that we were currently focusing on product, but would focus on revenue later. He was confused that somehow we saw a tradeoff between focusing on product and focusing on growth. Building product should equal growing revenue. People show they value your product by paying for it.
Look to revenue for feature focus.
Charging is a powerful indicator that you’re building something people want. If you’re not charging, you’re likely spending money (in terms of development time) building features your users don’t really want. People who pay you have opinions about what to build next. Making them happy will lead to more people like them paying you.
Focus on the right customer.
Paul Buchheit, partner at YCombinator, often says, “Find one user and make her happy.” I’d amend that — find one user in a big market that has the highest LTV and lowest churn, and focus on making her happy. Otherwise, you may be boiling the ocean.
Understand the root of any problem.
After one board meeting, our investor said, “You have a distribution problem, not a product problem.” It’s a lot easier to change your message and re-focus on a different target market than completely changing your product. Do that before pivoting or rebuilding your product.
Do what leads to higher conversions.
“Cheaper and better” is another truism I found to be mostly false. Customers often doubt a product is better because it’s cheaper. Strange, I know. I remember one of the Wufoo founders explaining the notion of being more expensive and better. Plus, if you charge more, you can invest more in product and truly improve it. In fact, I met one CEO who deliberately priced his product higher than his competitors just to get them to ask why. Then he’d pitch why his service was better than theirs. When we split-tested our pricing, a cheaper price didn’t lead to higher conversions. Maybe there are some scenarios where “cheaper and better” could make sense, but perhaps the default truism should be reversed to “more expensive and better.”
There isn’t a strong correlation between beautiful design and success.
Let me preface this by saying we love design. I’m a huge fan of design and we’re making a big investment now. I think it’ll help us get to the next level. I remember meeting with Garry Tan, who is an incredible designer. He mentioned that he hasn’t seen a strong correlation between good design and success of startup companies. If you have to choose, pick great user experience, then add great design later. What’s more, focusing on pixel perfection in the early days may even prevent you from getting the revenue you need.
Stay away from underpricing.
A huge customer wanted to use us for thousands of seats. Instead of being excited by our free plans, they just got confused. We lost them, and that was painful. Not paying means that you may not be around forever. Paying money for software signals that they can depend on you for this really important function in the future. Startups underprice all the time. As a business, we signed up for a $15 dollars a month tool. I would have paid $100 dollars a month for the value it provided. I had an unusual moment where instead of getting excited about how inexpensive it was, I got nervous about using a key piece of software that only costed $15 dollars a month.
Split-test pricing early and often.
Two years after launching, we doubled our pricing without an impact on churn or conversion. Since we grandfathered all of those users, we have two years of paid plans that could have been paying us $10 dollars a month versus $5 dollars a month. If we had done this split test earlier, we would have effectively doubled our revenue.
Try to be profitable, at least once.
I often meet with founders who tell me that they’re working on free user growth. I’m going to say something controversial: With few exceptions, you should never focus on free user growth at the expense of revenue unless you’ve previously been profitable or run a profitable company. I don’t think most new founders know how to make the optimal tradeoff between free and paid user growth.
Make sure there is a mass market.
The only way for prosumers to potentially work is if they have an extremely high frequency of activity with your product. Make it something they will use often. They must see so much value that they pay for it. Plus, there needs to be a massive number of people who can use your software. That type of mass market prosumer software is few and far between.
Free users make the most noise, but pay the least.
We certainly give the best support possible to our free users, but we take their feature requests with a grain of salt. If you listen too closely, you may take your product in suboptimal directions. Build features for the people who pay you.
Keep an eye on Month Over Month (MoM) growth.
I can’t emphasize this enough. This is what separates lifestyle businesses and startups. Build 20 percent and add MoM growth, and you could be the next Dropbox.
Take time to stack revenue.
Even with high growth, revenue takes time. The average IPO is seven to 13 years. It takes time to stack paid plans every year. But if you have high MoM growth and minimize churn over time, revenue adds up.
Hire marketing and sales teams.
The danger of the product CEO is that when you love products, every solution is a product solution. However, word of mouth only gets you so far. Marketing, sales and business development makes companies grow. Great product just makes it easier. I once met with someone who buys startup companies at low prices when they are running out of money. He then implements very standard tactics to make them grow revenue. As a result, these companies then turn into revenue machines. His impact is immediate and mind-blowing — it’s unfortunate that the founders missed the chance to drive it themselves. Founders will often wait for a natural lift in growth and will keep changing their product until it gets there — even when changing the product no longer make sense.
Make small variances in churn.
Small differences in churn have an exponential impact on your monthly recurring revenue over time. Unless you get control of churn, your growth will eventually stop since churn will cancel out any new upgrades. It’ll become more and more difficult to replace churned users.
Implement annual plans as soon as possible.
You offer your users a discount for the year and in exchange, you get approximately ten months worth of revenue right away (depending on how you discount) rather than one month of revenue each month. That can easily make the difference between being cash flow positive and burning money. It can also reduce churn and many of your customers prefer them, which is a win-win. Plus, when those renewals hit after one year, your revenue takes a big jump. If I were you, I’d implement annual plans now.
Revenue isn’t a bad thing. We support a team of terrific people who help us build and support our product. The more revenue you have, the better you can make your product for your customers. For some reason, the mental default for founders is that their product should be free and they need to justify charging. In fact, most pricing truisms should be reversed. Statements like “cheaper and better” should need to be justified, instead of spoken and accepted as truth.
This article has been edited and condensed.
Joseph Walla is the CEO and co-founder of San Francisco based startup HelloSign, which launched in 2012 and provides the easiest way for businesses to sign legally binding documents online. The idea behind HelloSign was sparked by Joseph’s first successful product, HelloFax, which launched in 2010 after attending the prestigious startup accelerator Y Combinator (W11). Prior to moving to San Francisco, Joseph attended the University of Minnesota in his home state where he was awarded both the Truman and Luce scholarships and received a BA in Political Science. Connect with @HelloSign and @josephwalla on Twitter.