A good chunk of chapter 6 from my startup book went live on the interwebs this morning as a guest post on Jason Cohen’s popular startup blog A Smart Bear. I edited the chapter for length and tone, but the five key points are intact:

1. Why should a startup use a virtual assistant (VA)?
2. The two points in the startup process when a VA is most helpful
3. Case studies of my use of VAs
4. The steps for finding, evaluating and vetting a VA
5. The best places to find a VA

Read the full article here.

Photo by John McNab

Popular musicians possess entrepreneurial qualities, most often the passion and drive we see in successful startup entrepreneurs.

What we don’t often think about is that although there’s luck involved in becoming a “rock star,” there are deliberate decisions a musician makes early in a career that will impact their level of success months or years later.

And so it is with starting a company.

While this article is meant as a break from the normal seriousness of this blog, I honestly believe that we can learn much from a group of founders who sold hundreds of millions (some say 1 billion) units.

Here are four lessons we can learn from the Beatles’ startup career.

Do It for the Love, Because the Money’s a Long Way Off
John Lennon and Paul McCartney, the two founding members of the band, would regularly cut school to write songs together. When kids cut school in my hometown, they went to play video games or smoke. Heading out from school to hone your songwriting skill is not on the radar for most high schoolers.

But they did it because they loved writing music. If they had done it for the money they would have stopped long before they became an overnight success five years of non-stop practice later.

This reminds me of a quote I’ve heard attributed to Stephen King, who announced his retirement a few years ago (though he did not actually retire). He was asked, “So, you’re going to retire from writing?”

He replied, “No, I’m going to retire from publishing.”

Those people who just have to do what it is they are doing, whether it’s writing songs or writing novels, have a huge advantage over those who are in it for other reasons (typically money and fame).

I’m not a believer that you have to love the startup idea you’re working on, but you do need to love the process of starting up…the excitement of breathing life into a new idea. Otherwise you’re going to close up shop at the first sign of a danger point.

Get Feedback Early and Often
The Beatles began playing out under various names within a few months of forming in 1957, when John and Paul were 16 and 15, respectively. Though the line-up was ever changing and they didn’t find a permanent drummer until 1960.

But although the band was still very much an unfinished prototype of what they would become, with a revolving door of musicians and numerous band names (including “Johnny and the Moondogs” and “The Silver Beatles”) they were playing in front of audiences whenever possible.

This improved their musical abilities, was an instant feedback loop on which of their songs were “hits” and which were duds, and dramatically improved their stage presence. Each element was a piece that later fit together to build the best-selling musical group of all time.

So get out of the basement and talk to potential customers. Think of it as improving your stage presence.

Put in Your Time
During the two years from 1960 to 1962 The Beatles played countless all-night sets at clubs in Hamburg, Germany. These were eight-hour sets, and they would reportedly take uppers to maintain their energy on stage. Not only was it grueling work, but the sheer volume of material they had to learn to play eight hours worth of music is mind-boggling.

But this was how they built their reputation as a solid, reliable band with outstanding musical chops. They hung around other musicians and infiltrated the music scene in Hamburg and their native Liverpool, England and began seeing opportunities emerge, including backing a well-known singer of the day named Tony Sheridan on a version of My Bonnie.

This didn’t happen by accident. As I’ve said before:

The more you work the “luckier” you seem to get.

I have yet to see a startup succeed without countless hours of hard work. You’ve heard this before so I won’t belabor the point.

Build a Fan Base, then Go Big
The Beatles did not start touring Europe a week after they formed. Instead they played back and forth between Liverpool, England and Hamburg, Germany for two years building a fan base. Finding people who liked their music. Or their look. Or their style.

Before they went big they honed their writing abilities, musicianship, and their stage act. Only after two years and hundreds of hours of playing in front of a slowly growing group of fans did they “launch” by recording an album and heading out on tour.

Build your fan base. Find those people who need your product. If you can’t find this group of people, you’re probably building the wrong product.

Don’t know if you’ve seen this crazy deal at appSumo, but it’s essentially $528 in website analytics and optimization services for $25. It includes:

• 3 Months of Performable Starter Service
• Lifetime Crazy Egg membership (track 1000 visitors per month)
• 3 Months of Clicky Pro web analytics
• 3 Months of Visual Website Optimizer
• 1 user test + 50% off the next 5 tests at UserTesting

I’ll be picking one up for myself this week.

The following is a guest article by Ruben Gamez of Bidsketch.

Not too long ago it seemed like every product I knew was offering some sort of free plan. The strategy was brilliant: get loads of people using your product and eventually turn them into paying customers. Everywhere I looked there were stories of people making money hand over fist with this approach.

When 37signals talked about giving something away for free as a marketing strategy, it made a lot of sense to me:

“For us, Writeboard and Ta-da list are completely free apps that we use to get people on the path to using our other products. Also, we always offer some sort of free version of all our apps.

We want people to experience the product, the interface, the usefulness of what we’ve built. Once they’re hooked, they’re much more likely to upgrade to one of the paying plans (which allow more projects or pages and gives people access to additional features like file uploading and ssl data encryption).”

So when I launched Bidsketch — a SaaS based proposal application for designers — offering a free plan was a no-brainer in my book. Out of all the important decisions I spent time mulling over before my launch, I gave this one the least thought.

Early on, things were working out nicely. In the first few days of my launch I had more people sign up for the paid plan than the free plan.

“Man, this free plan is really working out,” I thought. Here is a look at the numbers:

The numbers looked but great, but I suspected they weren’t sustainable because I had launched to my mailing list. A well-maintained mailing list tends to convert much better than traffic from other sources.

In any case, I was still happy with the results a week later, once I started converting general website traffic:

While the numbers looked good I knew they wouldn’t last because I was relying on a limited time offer. I just didn’t realize how much worse things would get:

For the next month only 1% of users would choose the paid option. My user base was growing fast but the money was barely trickling in. Also, support was starting to get tricky, which left me uncomfortable at the thought of what things would look like six months down the line.

How many of the free accounts was I able to upgrade to paid? I didn’t fare any better upselling users: 0.8% of free user accounts eventually upgraded to paid.

When things started going south, I figured I was to blame for this. I simply wasn’t carving out the right features. Or maybe I wasn’t prompting for upgrades at the right places.

I tried all sorts of tactics to convert my free users:

• More upgrade prompts
• Less features on free accounts
• Premium features for 15 days
• More emails aimed at upselling users to paid

None of these changes had a significant impact. The only thing that seemed to be consistent about my growth was that my revenue was relatively flat while my user base kept growing.

If I stayed on this path, I’d soon have thousands of free users to support.

So in a desperate attempt to get things moving in the right direction, I experimented for a week by killing my free plan. I didn’t tell anyone that I was getting rid of my free plan, I simply deleted it from my pricing page.

My major concern was that I’d keep the same number of paid users coming in and I’d lose all the free ones. Which means I wouldn’t have a targeted list of users to try to upsell to a paid plan. Not that I was having much success getting them to upgrade, but at least it was something.

Things didn’t quite turn out that way. This change that took all of five minutes to make, led to an 8x increase in paid conversions.

Look at that again. That’s not 8%. That’s 800%.

I felt comfortable enough with the results to try it out for the entire month. Amazingly, this resulted in a 10x increase in paid conversions for the month.

And I’m not the only one
It wasn’t long after I got rid of my free plan that I started to notice that a lot of people were citing similar issues with having a free plan.

I saw that 37signals had hidden theirs.

Before:

After:

And that I ran into a Mixergy interview where 37signals founder, Jason Fried, talks about their free plan (6:00 into the interview):

“… The majority of the revenues for our products come from people who sign up for the paid versions upfront. So we definitely have people upgrading from free to paid, but the majority of people who are on pay started on pay… of course, more people are going to pick the free version and stay on the free version, but if you’re looking to get paying customers, ask for money upfront and you’ll have a lot better shot of getting them.”

The so-called Freemium success stories had similarly low ratios of free to paid accounts. We can see numbers published about Pandora, Evernote, and MailChimp showing this pattern.

Pandora started out with less than 1% of their user base as paid subscribers. Once they focused on delivering a better premium offering they were able to increase that to 1.7%. Still, pretty underwhelming unless you’ve got 20 million people using your service like they do.

Evernote is looking at a 0.5% conversion rate to paid accounts initially and can convert 2% of the people that stick around for a year.

While there wasn’t a specific conversion rate published for MailChimp, they did mention the negative side effect of abuse-related issues:

“But the biggest bumps of all? A 354 percent increase in abuse-related issues like spamming, followed by a 245 percent increase in legal costs dealing people trying to game the system.”

Holy crap. Where was this info when I needed it?

CrazyEgg decided to drop its free plan in Jan of 2009 and they haven’t looked back. I asked CrazyEgg co-founder Hiten Shah why they decided to drop their free plan back then. “We thought that if we dropped it we would make more money,” said Hiten. This turned out to be a good move since it doubled their revenue that month.

LessAccounting co-founder Allan Branch said while they don’t claim to know what the best approach is in regards to a free plan, they haven’t seen a good reason to change what they’re doing now. With them, users have to sign up to a paid plan trial, and will get dropped to a free plan if they don’t enter payment information at the end of the trial. Obviously, this approach of making users choose a paid plan at signup has worked well for them so far.

An Example We Can Relate To
A lot of us aren’t at the same level that these guys are; we’re not dealing with millions of users, or even hundreds of thousands. So an example like Pluggio might be easier to relate to.

Pluggio is a Freemium Twitter web app created by Justin Vincent. He has a great stats page that shows everything from monthly revenue to the breakdown of users by plan type.

Taking a look at that page reveals that he’s actually doing very well for a relatively young app in this space.

He’s been averaging about a thousand dollars a month since November of last year. And unlike the bigger guys, his paid users make up 2.5% of all accounts. That’s damn good for any sort of Freemium app judging by the numbers that we’ve seen so far.

I spoke with Justin to ask him about his experience with the Freemium model. He seemed to be doing well with Pluggio which is why I was surprised when he told me he was seriously considering killing his free plan.

His reason for doing this? Revenue has been relatively flat and the number of users has been steadily increasing over the last few months (currently nearing five thousand).

This says a lot about the pitfalls of having a free plan for entrepreneurs with limited resources.

Do they ever make sense?
I’m not saying that it’s impossible to be successful if you launch with a free plan.

Obviously free plans have worked well for companies like Wufoo, MailChimp, and FreshBooks, so we know they can work. But the problem is that we’re not them.

We need to stop blindly copying them and start thinking about ways to bring in revenue.

I’ll concede that there are certain types of apps that are more likely to succeed by offering a free plan and going with the Freemium model. But the vast majority of apps aren’t in this category, and the vast majority of people don’t have the resources to make that model work.

Taking advantage of word-of-mouth marketing requires more users than most of us will attain. Instead, we end up with a large number of free users zapping away valuable resources for nothing in return. To top it off, most free users will never end up converting to a paid plan.

If we have thousands of users that don’t increase awareness and will never pay for our product, why do we insist in offering something that’s going to hurt our business? Maybe we should just skip that free plan and focus on making money instead.

About the Author
Ruben Gamez is the founder of Bidsketch, web based proposal software for designers. When he’s not developing software, he’s furiously working towards becoming a better Micropreneur.

When I originally published Start Small, Stay Small: A Developer’s Guide to Launching a Startup, my intention was to follow up the PDF and paperback versions with Kindle, iBook and ePub versions. That plan went by the wayside once I discovered there was no automated way to go from a Word doc to these formats.

After contacting a half-dozen ebook conversion firms I found a company that turned the Kindle and ePub versions around in two days, although the Kindle version required three rounds of QA over the course of 10 days before it was ready to be published. So 12 days and a few hundred dollars later I now have the necessary hand-coded files.

Kindle, Here I Come
So as of this morning, Start Small, Stay Small is now available in Kindle format from the Amazon website, and PDF & ePub format from the startup book website.

If you’ve already purchased the book in PDF you should have received an email with a link to download the ePub version. If you haven’t, email me.

The paperback version is also available from both startup book and Amazon, but buy it from startup book (you can pay through Amazon or PayPal) since Amazon takes more than half the revenue off the top. The economics of book publishing are pretty crazy when not selling direct to the consumer.

Speaking of that, the Kindle commission is 35% of the purchase price. That’s what Amazon pays me. Ouch! As soon as you price your book above $9.99 your commission plummets from 70% to 35% of the retail price. Now I understand why the big book publishers were having such a fit about Amazon essentially forcing them into this pricing bracket.

Bye Bye iBook
At this point it does not look like the iBook version will come to fruition.

For one, you need a Mac to publish a book to the iTunes store.

For two, the handful of iPad owners I’ve talked to indicated they use the Kindle app to read books on their iPad. Apparently, the iBook app isn’t that great and the iBook selection is small. Go figure.

You’re a startup founder, whether actual or aspiring. You’re a constant learner; a student of life. Also a student of reading.

You own a wall of books, or perhaps a Kindle or iPad bulging at the edge of its hard disk with non-fiction you’ve earmarked for future reading. Business books are a founder’s learning tool. A way to stand on the shoulders of giants.

So let me tell you why you should stop reading them.

The Gladwell Effect
Every entrepreneur has read at least one book in the “Gladwell/Godin” genre. These books are fun to read, focus on a single high-level premise and are packed with entertaining anecdotes to demonstrate or support that premise.

(Confession: I’ve been Seth Godin fan-boy for years. I am completely stoked that we are speaking at the same conference in October.)

The problem is not that these books are a series of anecdotes disguised as science. The problem is that the premise of all of them – whether true or false – is irrelevant to you as a startup founder.

The knowledge that you need 10,000 hours to master a subject, that certain trends become viral after the 412th person adopts it, or that you should make your product remarkable, is not going to help you launch. Nor will it save you a single minute during product development, or sell one more copy of your application.

“But wait a minute,” you say “isn’t knowing about tipping points and purple cows going to help me in the long-run as I run a business. I mean come on, I need to know about marketing and trends and stuff, right?”

There’s a slight chance it will. But probably not. There are actually two problems with this line of thinking:

1. The amount of actual information garnered from this kind of book can be summarized in a page or two of written text.
2. The information is at such a high level that it’s downright impossible to implement. Knowing you need to make your product remarkable is one thing. Knowing how to do that is another thing entirely.

How many times have you finished one of these books and thought: “Great…but what do I do now?”

The “Everyone is in the Fortune 500″ Effect
Ok, so high-level, feel good books about social/marketing trends are not going to help my startup. But what about other kinds of business books? Books that deal with real data and have actual case studies?

I was on paternity leave a few weeks ago and I had time to catch up on reading a long list of books that have sat stacked on my desk for months. These books are more specific and rigorous than your standard Malcolm Gladwell fare; things like Getting to Plan B, The New Business Road Test, and Business Model Generation. I’ve read similar books like this in the past as well, some of my favorites are Good to Great and Built to Last.

As a serial entrepreneur these books should be right up my alley. They cover topics like how to pivot your product and/or revenue model to find market fit, how to test a business idea before building the business, how to find a business model for your company, and how to build great companies.

And these books are great at doing just that…if you’re Sony. Or Proctor and Gamble. Or Panasonic.

The thought that kept running through my mind as I read them was:

“This information would be helpful if I needed to generate a huge business plan to impress a business-school professor.”

The problem here is also twofold:

1. Many of these books are weighed down with so much theory it’s like sitting in a horrific MBA course from the 1950s (the first three I mentioned are in this trap, the last two not so much)
2. They speak to markets and business opportunities measured with 8 zeros or more. Massive markets that you don’t need to understand to run a software company.

Before you know what kind of company you want to start this can be helpful. Think of it as a survey course you take in college that shows you all of your options for starting a company.

But if you’re past the point of needing a survey course, and you’ve settled on a focused type of entrepreneurship involving self-funded, organically grown companies, you will find the vast majority of business books have no relevance to this path.

Even if you’re going after angel and VC funding, your choice of books that actually apply to your market instead of the one billion people who will buy toothpaste next year, is slim.

Once you’ve decided to start a startup and you know if you’re going to self-fund or raise capital, you need laser-focused books (or better yet blogs, podcasts and mentors) that speak in-depth about your particular situation.

Starting a self-funded startup but listening to how a bunch of venture-backed companies made it is a waste of your time. Inspiring stories aren’t going to help you unless you’re in desperate need of inspiration; you need knowledge that comes from someone with actual experience.

The Information Overload Effect
Finally, if you find a book that has some tidbits of semi-actionable information that you’re not ready to implement in the next month, think really hard about investing the time to read it.

Given the amount of information we consume every day, the portion of the info that you can retain, synthesize, and put into action is plummeting.

The problem is that we’re addicted to consuming. Addicted to the fire hose of tweets, blog posts and books because it makes us feel productive and informed. When what they really do is kill time.

Reading a business book that does not have a direct impact on what you’re going to be working on in the next 1-2 months is about as productive as watching Lost. Indeed, I would go so far as to say that:

For entrepreneurs, reading business books is the new television.

Objections
Here are two potential objections that I’d like to address:

Objection #1: “I like reading Seth Godin because everyone’s talking about it and it makes me feel informed.”

Great. Me too.

But instead of spending hours reading the book, read a detailed review of the book, or listen to an interview about the book. Trust me, you will pick up all of the salient points in 30 minutes. The only thing you’ll be missing out on are the copious examples.

I’ve done this with the last 3 Seth Godin books, and the previous 2 Malcolm Gladwell titles. It works amazingly well.

Objection #2: “I like reading business books as a hobby.”

Then by all means do this in your spare time. But know that it is a hobby akin to stamp collecting or gardening; it makes no contribution to your productivity as a startup founder. If you think that reading a Seth Godin book will ever put a single item on your task list that will help your startup, you are mistaken.

“Ok, I buy this preposterous idea you’re proposing…what should I do now?”
Let me re-iterate that I’m not saying you should stop reading books. What I’m saying is that once you’ve determined your area of focus, you should spend the vast majority of your time reading books in that genre, instead of general business/entrepreneur fare we all seem to get sucked into.

In other words, look for resources that provide actionable take-aways to improve your business and that focus on topics that are specifically relevant to your situation. You want laser-focused, just-in-time learning.

This is the reason I focused my startup book on a tight niche instead of giving it broad appeal, even though it means I will sell fewer copies.

I narrowed the focus because it allowed me to speak directly to my audience, and to be ultra-specific about tools and approaches instead of copping out and using a stack of generalities that provide little value to the reader. And I think I made the right call.

I’ve received numerous emails with the same basic sentiment: “I’ve taken away more action items from this book than any other startup book I’ve read.” This was my goal, and one I could only accomplish by focusing on the small niche of developers looking to launch startups.

With that said, here are a few examples of the types of books I recommend reading. Books that offer specific approaches that you can put into practice immediately (assuming you have launched or are launching soon). Any of the following will provide a 100x return on your time investment compared to the titles I’ve mentioned above:

• Web Copy that Sells
• Always Be Testing
• Web Analytics An Hour a Day
• Web Design for ROI

Moving Beyond Books
One final thought. As I’ve traveled this entrepreneurial journey I’ve noticed that my two biggest sources of learning have been my own first-hand experience, and the knowledge of other entrepreneurs.

So my first piece of advice is to get to work on your startup. Your code isn’t going to write itself, and every hour of first-hand experience you gain launching your own product means you are better equipped to deal with the craziness that is a startup. No book can teach you that.

My second piece of advice: Find some kind of accountability group or startup community. If you can do it in person, all the better.

Hit Meetup.com for starters, and search Facebook for other tech entrepreneurs in your area. Find like-minded startup founders and get to know them.

Then hand pick 3-5 others and organize a small, private, committed accountability group that meets every 1-2 weeks where you can discuss your projects. You’ll be amazed at the impact this has on your motivation, your progress and your overall success.

Micropreneur Academy member Ruben Gamez launched Bidsketch five months after joining the Academy, and has experienced quite a bit of success with this niche application for designers.

I’m subscribed to his mailing list, and recently received an email update about a new version of the app; the kind of email I would typically delete without thinking.

But three things about this email drew me in until I found myself reading the entire email and clicking the link contained within. So I am presenting them here as tips for getting people to read your email newsletter.

Tip #1: Use a Custom Design
I’m typically a fan of text-only newsletter email due to the challenge of getting things to display correctly in email clients. But the design of this email is branded, yet simple. It immediately caught my eye as something I wanted to at least take a peek at.

Tip #2: Use Bullets
This email is made up almost entirely of bullets. This makes it very skimmable, and if you want to find out more information you can click through to the blog. The email is also super short so it’s hard not to read the entire thing.

Tip #3: Be Funny
The writing is clever without trying too hard. It draws you in, and not only makes you want to read more, but puts a human face on the company. The company happens to be run by a human, so this is a good thing.

(Bonus) Tip #4: Personal Reply-To Email
When I replied to the email to tell Ruben what I liked about the email, the reply-to address appeared as “ruben@bidsketch.com.” Not “noreply@bidsketch.com” or “support@bidsketch.com.” Another nice way to put a human face on your company.

My wife had our new baby 7 days ago, and I am currently on leave from work. Except I work from home so I’m not sure I can really call it “leave.” But you get the idea.

My time off consisted of 3 days completely disconnected, and then about 30 minutes each day of email and maintenance (easy to do when everyone’s asleep). Lucky for me there aren’t any tasks that I’m required to do in a given time-frame. This is the time independence I’ve talked about in the past, and the beauty of being a Micropreneur instead of a consultant. No clients busting my chops.

I’ve viewed this time off as a test of the Micropreneur approach; to see if I could really pull back from work and let things run on auto-pilot. This is helpful to do periodically, as it always exposes potential improvements I can make to my processes.

Discovery #1
I really don’t need an email notification every time I make a sale. Although it gives me a good feeling to get a “you’ve got cash!” email during my normal workday, my apps make enough individual sales that these emails really pile up.

I make a car payment to PayPal every month in commissions…that’s a lot of individual sales that I’m getting notified about, and a lot of emails I’m deleting. Waste…of…time.

Discovery #2
My income has not been impacted in the least. It’s only been a week, but if I were consulting I would be several thousand dollars down by now. A nice testament to having income tied to products instead of hours worked.

After a couple years of Micropreneurship, it’s still difficult to accept that there are enough systems in place that I’m able to make money without working…at least for a period of time.

Discovery #3
Not a single email has been do-or-die for any of my businesses. I’m confident I could completely walk away from email cold-turkey without giving notice, for two weeks. I’d just have a pile of email to sort through when I returned. I’ve also realized that I could run at this “30 minutes per day” pace for a month pretty easily. Maybe 6 weeks.

If I adjusted my current processes and outsourced a few more things (see below) I think I could pull off between one and two months at this pace (three feels like it would be pushing it). No need to do that now, but it may be something I attempt in a couple years once my kids are older and we take a (currently theoretical) trip to Europe.

Discovery #4
I’ve made the painful and extremely helpful discovery that over the past six months since I last ran this test, that I’m handling a lot of emails that I should be outsourcing to my VAs. When you only have 30 minutes a day to take care of everything on your plate, it becomes apparent right away what you should not be spending your time on.

Within 48 hours of this experiment I realized that all the “little” email support tasks I’m handling need to be outsourced. I have a VA who can handle these emails better than I can. They’ve got to go.

Rest assured they will be off my plate within two weeks.

Photo by mrphancy

I recently started listening to the E-mything Your Business Podcast which is essentially a nine-episode commercial for a book called Built to Sell: Turn Your Business Into One You Can Sell. But it’s not a bad commercial; it has interesting information about the factors that can substantially increase the value of a business.

This ties in with something I’ve said before:

Build your business to sell, even if you have no plans to.

This is because the factors that make a business attractive to potential acquirers are the same ones that make your business a better business to own: efficiency, automation, repeatable, documented, scalable, etc…

Notice I’m not talking about building your business “to flip.” Flipping implies building a shoddy company that maximizes short-term profit.

Instead, we’re talking about building your startup to maximize its value based on factors the market values, since these factors will make it a better company to own in the both the short- and long-term.

A Product that Scales
The author, John Warrillow, says that most businesses do not scale well. By “scale” he means: can the business grow very quickly without a lot of manual intervention?

A consulting firm scales very poorly. You’ve likely tried consulting work or are still doing it, and you know it’s a dollars-for-hours trade. Nothing scalable (or fun) about that. This is why you’re thinking about a startup, right?

The three components to a scalable business, according to John, are being:

1. Repeatable
2. Teachable
3. Valuable

Let’s take a look at each one of these in the context of a startup.

Repeatable
In a traditional business a repeatable product/service is something that does not require a high level of expertise and customization every time you make a sale. The sales process might be customized, but the product or service should be as cookie-cutter as you can make it. The more repeatable, the more profit you will make with each sale, and the more valuable your company becomes.

In a startup, this means developing a product and a sales process that does not require your time. Ideally you want the entire sales process to take place on your website with no manual intervention, including the purchase, order fulfillment, serial number generation, etc…

The ability to leave your startup on auto-pilot for a few weeks while you’re out of town (or working hard on new features) means more profit per hour for you, and a higher valuation should you ever decide to sell.

The lesson: build a product that does not require customizations, and completely automate your order fulfillment process.

Teachable
In a traditional business you leverage the time of your employees. You pay them less than you bill out, and you keep the difference. This means that the easier your process is to teach, the easier it is to find employees who can do the work, the more employees you can hire, and the more profit you will make per sale.

In a startup you have a few avenues: hire employees or use virtual assistants (VAs).

In either case it’s the same: having a process in place to handle customer support, refunds, product fulfillment, documentation updates, forum support, website updates, etc. will result in an easier ramp-up period for new hires , and less of your time that’s wasted in training.

The lesson: create a written for everything in your business, even if you’re the only person doing the work.

Valuable
John talks about having a product that’s valuable to your customers. In a traditional business this means offering non-commodity products and services.

For a startup, this means avoiding “me too” products, staying away from horizontal niches, solving a pain-point, and targeting a vertical niche.

By catering to a specific audience (plumbers, grocery store owners, psychologists, etc…) and building a product (and marketing) that caters to their every need…you will build something far more valuable than if you built the same product for a massive, horizontal audience.

The lesson: stick to vertical niches. Occupations and hobbies are best.

Charge Up Front
The other point I’ve taken away from the podcast is the fact that businesses that are the most valuable are able to charge for their work up-front. So instead of selling a product or service and invoicing in 30 or 60 days, the most valuable businesses charge before the product or service is supplier.

This allows for better cash-flow, potential profitability from day 1, and no need to take out a line of credit.

Applying this to startups is a no-brainer; most of us will charge the customer’s credit card before we provide a product.

The real application (and perhaps the punchline) is to charge for your product.

There are arguments against charging for your product, but unless you have venture funding they do not apply to you.

After much toil, my book Start Small, Stay Small: A Developer’s Guide to Launching a Startup is now available in paperback and PDF format at StartupBook.net.

A few reviews so far:

“Congrats @robwalling for “shipping” – I’ve started reading it, it’s GREAT stuff! ”
- Peldi, twitter.com/balsamiq

“[I] booked some time this afternoon and pretty much devoured it!  A great read, and I think you nailed exactly the right balance between big picture strategy and very specific and actionable tasks or resources.”
- Mark Roseman, www.markroseman.com

“@robwalling I’ve read only the first chapter and I think it’s the best piece I’ve read ”
- Akash Manohar, twitter.com/akashmanohar

“Started reading @robwalling’s book tonight. Got about 25 pages in, and I can already tell I’m going to like it.”
- Joel, Ross twitter.com/RossCode

“…an awesome combination of big-picture ideas with tools and tactics to make it happen.”
- Harry Hollander, Moraware Software

If you’re interested, it’s available in paperback and PDF format at StartupBook.net.

If you’re interested in the pre-launch discount for my book Start Small, Stay Small: A Developer’s Guide to Launching a Startup, you’ll want to head over to StartupBook.net in the next few hours.

I’ll be taking down the landing page and closing out the launch list this weekend in preparation for next week’s release.

Getting rich shouldn’t be your goal when launching a startup.

Thousands of people who are better developers than you, are better at evaluating markets, and better at marketing software have built products and still work for a living.

There is a chance that your startup will provide riches beyond your wildest dreams. A slightly better chance than buying a lottery ticket.

And while it’s true that you might get lucky your first time, “luck” is not a plan.

During his presentation at the Business of Software conference in 2009, Dharmesh Shah said “For your first startup, maximize your odds of a modest outcome.”

Have you ever considered aiming for a modest outcome?

This approach gives you time to learn the ropes. There are hundreds of things to learn your first time at the plate. That learning curve coupled with a big market and big competition is very likely to crush your chance of success.

Your first time at the plate you already have one things stacked against you: lack of experience. Don’t stack the complexity of a big market/big competition as well.

Maximize your odds of a modest outcome by choosing a niche market. It’s not as sexy as conquering the world with the next brilliant consumer-focused social media network microblog app, but your chance of a modest outcome is 10x…perhaps 100x greater.

Start your startup. Learn the ropes.

Then, whether you succeed or fail, you can swing for the fences. That second time you may just make it.

(Since several have asked…this is one of the reasons my upcoming book about starting a startup is titled Start Small, Stay Small)

I’ve communicated with hundreds of startup founders over the past three years, and I’ve begun to notice a pattern.

There are three points during the creating of a startup where the founders are most likely to close up shop. I call these the “danger points” and this post looks at how to avoid them.

Point #1: Choosing a Product Idea

There are three types of people: those who understand binary and those who don’t. No, wait…that’s a different blog post.

There are two types of people: those who are impulsive and those who over-analyze decisions. If you’re impulsive don’t worry about this point; you’ll have no clue what it’s about.

But if you tend to over-think your decisions, then choosing a product idea is going to take months…nay, years. That’s right – odds are high that by the time you figure out what you want to build you could have built and launched multiple products in the same time frame.

This is because committing to a product feels like a permanent decision, and a decision that’s easy to screw up.

While there is a limit to what you can “know” about a product idea before you start building,  if you do your niche research you can eliminate much of the uncertainty that goes into choosing a product idea (Pamela Slim talks about finding a niche here, here and here, and Mike and I have a step by step approach for finding and testing a niche in the Micropreneur Academy).

While you’ll never remove all uncertainty, you can remove enough that making the niche decision is a bit more clear cut than the dart board approach you’re using now. Niche research can make a world of difference in your confidence level as you start writing code.

Point #2: Two Months Into Development

Around the two month mark you will hit a dip. A big one.

You’ve spent every evening and weekend for the past two months and you’re barely making progress. And with the feature list ever-expanding it looks like you won’t launch for 8 months (or more). This is a common cause of death for small startups.

The first way to combat this milestone is to have a detailed feature list and an estimate for every task on that list. This list should include marketing tasks and anything else you need to get through your launch date. This list will be large; likely 80-120 lines long.

With an estimate for each item you should be looking at 400-600 hours total. For everything.

If you’re over 600 hours you need to cut something. Unless you have multiple, commited founders each working 10-15 hours per week on your product, you will not make it to launch if your total is over 600 hours (well, there’s a chance you will make it to launch, but a very small one).

This means cutting features. It’s a hard decision to make, but the quickest way to reduce your total hour count is not to “get faster at writing code” (I say with the tone once used on me by a manager), but to push features to v2.0.

The other approach I’ve mentioned before is to outsource. Even outsourcing construction of your sales website, or the HTML/CSS conversion, or copywriting can remove 20-80 hours from your time line and dramatically increase your chance of making it to launch day.

Point #3: One Month After Launch

The main reason someone shuts their company down after launch? They thought it would be easier to make sales.

They thought people would flock to their idea, fumbling for their credit cards the moment they heard someone had developed a re-tweeting cloud app for Facebook fan pages. But alas, being heard above the din of the internet is a tricky thing. Ask any startup founder.

No, the first few months after launch are extremely hard unless you’ve planned your launch well and identified the number one goal of your website. It’s not to sell your product…it’s to get people to come back to your website at a time in the future when they are ready to buy. This is most commonly achieved through a blog, podcast, or email list.

This is off the radar for most developers – most of us just want to write code and sell it to people. Oy, if only it were that easy. (I’ve written an entire section on the “#1 goal of your website” in my upcoming book, Start Small, Stay Small: A Developer’s Guide to Launching a Startup).

The bottom line here is to take your launch seriously, as seriously as you’ve taken your product development.

A successful launch will provide motivation to continue during the rough months ahead as you begin to support your product. Having an email list to notify on your launch day will result in your best sales day ever. This is the proper way to launch.

The wrong way is to assume that emailing bloggers the week before you move your website live will drive traffic that result in sales. Or that you’ll make hundreds of sales using AdWords. AdWords are good, but you’re not going to make a big splash on day 1. They take time to hone and become profitable. Same with SEO.

The marketing arsenal of a small startup should include all of the above items, but most of them take months (4-6 or more) to become profitable. If you want to turn a profit quickly…concentrate on building an email list for your launch.

The final aspect of launching well is having the right expectations.

A Micropreneur emailed a few months ago asking how he could sell six figures worth of his product in the first six months. He’s been following the edge cases too long…reading Fast Company and watching Balsalmiq (a great product, just a very atypical first year for a small company).

I let him know he would be better off if he adjusted his expectations and shot for $6k in revenue in the first 6 months. Sound low? It’s more than the vast majority of launches I’ve seen in the past three years. But once you make it past that first six months, that’s when things get interesting.

This post is an excerpt from my upcoming book, Start Small, Stay Small: A Developer’s Guide to Launching a Startup.

If you haven’t already signed up to receive the “crazy pre-release deal” when the book launches, you can do so at the startup book website.

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One piece of your marketing that you need to nail down is your “hook.”

This is not your Unique Selling Proposition, and it’s not your elevator pitch. It’s the headline of your home page. That single sentence that grabs the reader in and makes her know she’s in the right place.

• DotNetInvoice’s hook is “Save Time. Get Paid Faster.”
• FogBugz’s hook is “Bring Your Project into Focus”
• Basecamp’s hook is “The Better Way to Get Projects Done”
• Bidsketch’s hook is “Simple Proposal Software Made for Designers”
• When it was launched, the iPod’s hook was “One Thousand Songs in Your Pocket”

These are 5-7 word summaries of your product. Each one conveys an image in your mind. Each one describes what the product does and (in most cases) who it’s made for.

The benefit to finding your hook (which I also call “your 4-second pitch”) is when you meet someone face to face and they ask what your startup does, it’s your description. In 4-seconds you tell them clearly and concisely what it is that you do:

“We build invoicing software that helps entrepreneurs save time and get paid faster.”

Finding It
To find your hook you can take one of three approaches:

1. Explain what your product does and for whom. Such as “Simple proposal software made for designers.”
2. Make a promise to the customer espousing a benefit of your product, such as “Save Time. Get Paid Faster.”
3. Describe the single most remarkable feature of your product, such as “One Thousand Songs in Your Pocket.”

Some other fake examples for something as boring as inventory software made for grocery stores:

1. What it does and for whom: Inventory Tracking for Grocery Stores
2. Promise: Automate Your Inventory
3. Feature: A Million Items at your Fingertips

Spend a few minutes brainstorming your hook; it’s surprisingly easy to create one. Keep the words short and simply; no marketing speak. Discuss it with a friend or colleague in your target market to find out if it pulls him in.

Once you’ve decided on a hook you should put it as the header on your home page, and consider using it as your tagline. This hook is what will allow you to tell someone in 3 seconds what your product does, or at least why it’s so cool that they need to check it out.

An Invitation
Once you find your hook, post it in the comments with a link to your site. Consider this permission to do a little marketing for your startup or product.

With the purpose of this exercise in mind, keep it to one sentence plus your URL.

I taught an online A/B testing class yesterday at StartupSchool and the recording is now available on the course page.

It’s 50 minutes long, with about 30 minutes of presentation. The remainder is Q&A (there were some excellent questions asked).

Topics covered include:

• A/B testing basics
• Why you should A/B test
• I create an A/B test “on the fly”
• What you should test

The fourth episode of Startups for the Rest of Us, the podcast I co-host with Mike Taber, is live at our podcast website.

This episode is titled Things We Wish We Knew When We Started Out. It looks back at lessons we’ve learned during our years of entrepreneurship.

This is the last episode I’ll announce for a while so if you’re interested in hearing two software entrepreneurs talk about software and web startups, subscribe using one of the links below. New episodes are out every Tuesday.

Subscribe via:

• iTunes (opens iTunes)
• RSS
• Email

A few weeks ago I asked for your opinion on the focus and format for my book. Since then I’ve worked out a lot more specifics, and today I’m pleased to announce them.

Start Small. Stay Small. A Developer’s Guide to Launching a Startup covers everything a software or web developer needs to know to launch and grow a startup with no outside funding. Sign up to receive a crazy pre-release deal when the book launches.

Here’s a snippet from the first chapter:

Who is this Book For?

This book is aimed at developers who want to launch a software or web startup with no outside funding. This book is for companies started by real people to solve real pain points using desktop, web and mobile applications.

In this book I assume:

• You don’t have $6M of investor funds sitting in your bank account
  
• You’re not going to relocate yourself or your family to the handful of startup hubs in the world
• You’re not going to work 70 hour weeks for low pay with the hope of someday making millions from your stock options

There’s nothing wrong with going after venture funding and trying to grow a company fast like Amazon, Google, Twitter, and Facebook. It just so happens that most people are not in a place where they can pursue that route.

As I began the writing process I received input from developers who told me they were tired of “filler” material – weak case studies, superficial interviews, chapters describing 10 options for how to accomplish a task but no guidance on which path you should take.

So I’ve focused on providing a practical, step-by-step approach to getting your startup off the ground and focused on making every word count. No filler allowed.

If you aren’t frantically underlining, highlighting or taking notes as you read each chapter, then I have not achieved my goal for this book.

Sound like fun?

Sign up to receive a crazy pre-release deal when the book launches.

I will be speaking at the 2010 Business of Software Conference in Boston this October. Headliners for the conference include Joel Spolsky, Seth Godin, Eric Sink and Dharmesh Shah.

For the full list of speakers, check out the speakers page. With my luck I will speak immediately after Seth Godin.

After last year’s Pecha Kucha at BoS 2009 it took me a few days to recover from the stress. Nightmares about 20-second countdown timers and all. This year I’m looking forward to a more relaxed pace.

If you don’t have your tickets, buy them soon; they are $400 off until July 2nd.

Look forward to seeing you there.

Ever since I heard about Startup School a few months back I’ve been meaning to try it out. Next Tuesday I get my chance, as I take the reins of an online class on split testing (aka A/B testing).

The class is at 10am PST on Tuesday April 27th and 32 people have signed up so far.

Due to technical difficulties I will be re-teaching this class at 10am PST on Tuesday May 11th. It will be one hour in duration with the majority of the time devoted to Q&A.

Click here for more information or to sign up for the class.

The entertainment value of me flubbing my way through an online presentation will be priceless…

Something’s been bothering me for the past few months and today I finally put my finger on it.

It bothers me how much people like to criticize other people.

“People suck,” you’re thinking to yourself “so what’s your point?”

Ok, so it’s not just that people like to criticize other people, it’s that they like to criticize other people when they have relative anonymity, and when they haven’t achieved much themselves.

Yep, I’m gonna get flamed for this one.

Many of us have this tendency. You probably watched your dad criticize a coach’s decision when watching the game on TV, and he was loud and vocal about it. As if the decision couldn’t possibly make sense to anyone. That it was a crime against humanity and everyone knew it.

The internet brings this out more than any other medium I’ve seen; at no point in history have so many Monday morning quarterbacks been able to get together and toss insults at anyone who’s doing anything original, creative, or unique.

Like when people railed on Seth Godin for launching Squidoo.

Or hammered on Tim Ferriss about the 4-Hour Workweek.

Or talk smack semi-anonymously about Gary Vaynerchuk. Or Joel Spolsky.

There’s a need in some people to criticize the efforts of others. But you know what I’ve noticed? The more you put yourself out there, the more you realize how hard it is to do so, and the less you have this tendency.

I can’t remember the last time I saw someone like Seth, Gary or Tim rag on someone else.

Sure, they might disagree with someone’s approach (Ferriss likes to work short weeks, Gary V. likes to work long weeks), but they talk about it like adults and ultimately agree to disagree. They don’t disparage one another or one anothers’ belief. They simply acknowledge that another intelligent person could think differently and still be considered intelligent.

I think the difference is that once you’re putting yourself out there you realize that doing anything worthwhile is really hard…so you cut people some slack.

Because making decisions in the public eye, publishing passionate content that’s part of you, trying risky things, starting a company, writing a blog that people read, starting a podcast, and doing something that other people notice…is so terrifying I dedicated an entire post to it last week.

I’m not sure what the take away is. Maybe that it’s easy to criticize from the stands.

It’s easy to poke holes in someone’s argument on a forum with 100 readers where all you give is your first name and last initial.

That it’s easy to pick apart someone’s startup idea, their app, their new song, or their blog when you’ve never had the guts to do any of those things yourself.

What’s hard…is doing something.