Failed SaaS post-mortem: validate your pricing model like I didn't
elliotbonneville.com
elliotbonneville.com
... wow, that's crazy fast. I'd argue you didn't validate anything with that time frame. It takes months to build a reputation or awareness around a product to give people time to make a decision. As SaaStr says, give your product/startup TWO YEARS.[1]
Three weeks isn't enough time to even pretend you're bootstrapping. That's a vacation from work...
> The basic concept was solid: provide an insanely simple way for business intelligence consultants to manage project data.
... ESPECIALLY IN B2B.
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[1] https://www.saastr.com/if-youre-going-to-do-a-saas-start-up-...
I mean, perhaps ALL of software is so saturated there are no places where this can happen, but I'd rather spend a couple of years discovering that then spend a couple of years learning that one solution I tried to sell isn't valid.
As Jason says in his interviews, if it were that easy, then we'd all have 1000 customers and bootstrapped startups.
Wouldn't I be taking a risk in not taking a risk, thus decreasing the likelihood of success... which should then increase the likelihood of success?
I only say this for the sake of argument and I think there's something wrong with this logic, but for the life of me I can't find it.
Just keep selling it, it takes time.
If you're building SaaS, go ahead and take that SaaStr article as gospel (and a lot of their other writing as well). Maybe you're a special unicorn where it doesn't apply, but most likely you aren't.
It took us 18 months to make our first dollar and then another 10 months to hit $2k MRR. Now we're north of $800k ARR. (bootstrapped, 2 first-time founders)
Time frames of "three weeks" and "two months" are unrealistically quick, and might cause you to give up before you even give your startup a real chance.
Mayyyybe you can hit these milestones if:
- You've built a successful SaaS company before, and deeply understand product, sales, marketing, pricing, etc
- You start out with a validated product + market, so you have a high chance of hitting product market fit quickly
- You have a team and can work on building product + acquiring users simultaneously
But for a first-time solo-founder, this is just so unrealistic.
you keep experimenting and validating as you grow. yc is basically premised on this being true.
I'm sure dialing in pricing / market will improve pricing a LOT, but it also seems logical that those improvements will be a multiple of the initial unit economics to some degree.
Why the 90 hour weeks? Why make critical business decisions without any metrics after hearing some guy on the internet talk about $50/user? Because he's famous?
Most experienced people know to have patience: patience to find the right solution, patience to find the right users and patience to make the right connections. It all takes time and you only gave it 3 weeks?
Sorry but you sound like you want to make a quick buck and retire early, or maybe you need the money now. Nothing wrong with that, but it's not really a "SaaS post-mortem", it's more of a "I don't have the time or patience to invest in this SaaS".
All I can say is, have more patience, don't rush into things and don't throw your hands up in the air and give up when it's not going as well as you imagined in your mind. You have to persevere if you're going to run a startup. Good luck!
I also completely disagree on the assumption that pricing had anything to do with your failure. Your startup didn't fail because of the economics, it failed because your product didn't provide enough value to customers.
Well, I've also done it the other way where I spent three years at a startup and couldn't find traction. I'm just trying to hit the other extreme as well, and so hopefully land somewhere in the sweet spot in the middle.
> you failed because your product didn't provide enough value to customers.
Hmm, this is another great way of putting it -- value translates into pricing pretty directly, so if you can't charge enough there's probably not enough value. I think that's another way of saying the same thing.
There is a massive space in-between those timeframes =P In this case, it doesn't seem you even actually built out a real MVP (not just the front-end) and tried to sell to customers. You hadn't actually validated whether people actually wanted the product for real, and just killed it because of one person's experience delivered in a talk?
If you're taking PG's essays to heart, your only concern at the beginning should be building the thing and finding customers that really want it. The pricing stuff is the easiest thing by far to change (checkout patio11's stuff on this, if you haven't).
Maybe this one really would have been a bust. But if your goal is to reach $2k MRR in 2 months, there's little chance you're gunna get there by building 3 week projects and gaming it out in your head instead of just selling to people. Choose 1 thing that you have a customer lined up for that really really wants it, and spend those two months building that out and making them happy.
And to call it a post-mortem? Forgive me, but post-mortem analyses are valuable when slow – these insights come too quick, without enough chewing going on.
The conclusion about the pricing model feels the most forced to me. What he's really saying is that he wanted to limit the number of customers to 25 or so and achieve a $2k MRR within 2 months. The reason for this was to have more time for other pursuits, such as homeschooling the imminent child or other pursuits. Implied there is some amount of time required that is << 40 hours/week.
Reading his initial blog post, he doesn't mention the pricing model at all. He does mention taking a week to build a POC that his dad can show to his co-workers as well as contacting a few hundred BI folks via LinkedIn. That doesn't seem like a terrible approach. Build something, see what resonates, etc.
Reading the article, what really seems to have happened is that he spent a week creating a UI POC, shopped it to 30 BI folks on LinkedIn over two weeks, and didn't get traction. I'm not sure what happened to the 20-30 reach outs per day.
The real reason for the failure wasn't the pricing model, it was that the developer wanted something that would earn $2k/month with little to no effort on his part. The main reason the project failed was because he did no research in building it, and then decided not to continue it. The "pricing model" comes in when he decides what # of customers he can support in whatever amount of time he was willing the spend. He then extrapolated a number from that to get $2k MRR. Then, and only then, did he actually look at what comparable products on the market charge.
The more I think about it, I'm pretty sure the whole exercise, including the "pricing model" conclusion, was simply an exercise in content generation. If so, well played, sir.
You've given me a lot to chew on, and I really appreciate the unbiased, perhaps even adversarial, response.
> The conclusion about the pricing model feels the most forced to me. What he's really saying is that he wanted to limit the number of customers to 25 or so and achieve a $2k MRR within 2 months.
I think this is an incorrect assumption. The idea going in is if I can get to $2k MRR within two months, that'll free me up to quit my day job by extending my runway significantly. Then I can spend all my time working on the SaaS, working on the more time-consuming parts like marketing, organic content generation and outreach, etc.
> Reading the article, what really seems to have happened is that he spent a week creating a UI POC, shopped it to 30 BI folks on LinkedIn over two weeks, and didn't get traction. I'm not sure what happened to the 20-30 reach outs per day.
Well, I had started doing those 20-30 reach outs per day, but on like day two I found Jason's video and it blew my mind enough to disrupt me from that course of action immediately. I stopped doing outreach to think about it (why would I want to bother people about something I may not even ship?).
After spending some time thinking about it and discussing whether or not I should continue with a couple of my mentors and my dad, we all agreed that my time could be better spent elsewhere.
> The real reason for the failure wasn't the pricing model, it was that the developer wanted something that would earn $2k/month with little to no effort on his part.
I hesitate to call this "failure" anymore after reading the other comments on this post, which have been really helpful in shaping how I think about this whole story.
Instead, it's a thought-through decision to put my effort in elsewhere.
If I can spend the same amount of time building a POC and getting 25 paying users, with all else being equal, why would I want to spend that time building a POC for which I can charge less? Isn't it natural to build a startup where I can charge more, if that's within the realm of possibility?
Given the fact that I was only three weeks in, I wasn't suffering from sunk cost fallacy of "well, I've come this far -- might as well keep going now!".
> The "pricing model" comes in when he decides what # of customers he can support in whatever amount of time he was willing the spend. He then extrapolated a number from that to get $2k MRR.
Actually, the $2k MRR comes from picking a somewhat arbitrary goal that I thought was slightly out of reach, and significant enough. I think there were a couple of people that mentioned hitting $2k MRR within 6 - 12 months in Indie Hacker podcasts, so I thought -- if they can do it that fast, is there any reason I can't do it faster?
My thinking here comes from that quote Tim Ferriss likes to share, "why not six months instead of ten years?"
So... why not give it a shot, ya know?
> Then, and only then, did he actually look at what comparable products on the market charge.
Actually, those numbers came up in conversations I was having with the people I reached out to on LinkedIn.
They started talking about price, and I watched Jason's video, at around the same time.
The reason I didn't mention anything about price in my first article was simply because I legit hadn't even thought of it at all.
Once I did think of it -- well, I'll end with asking this rhetorical question again: if I could build something and sell it to 25 people for either X or 2X, why would I build something I can only sell for X? It makes sense to go for the 2X, right?
Cheers, and thanks again for taking the time to write up that comment. It's been helpful to me in thinking about how I went about this and what I will do differently next time.
> The more I think about it, I'm pretty sure the whole exercise, including the "pricing model" conclusion, was simply an exercise in content generation. If so, well played, sir.
Welllllll... about that. The articles I've been writing about this process are definitely an exercise in content generation. The process itself, though, is just me fumbling my way through this with few mentors and little experience.
Obviously, if you are presented with two options for things you can sell with similar ease to similar numbers of people, you should pick the higher priced one.
But you don’t have another product like that, do you? You have this one. Why not try and sell this one, instead of worrying about some theoretical 2x alternative.
If you find the 2x alternative, why waste your time with that when you could just find a 4x alternative and build that instead!
The end of this road is obvious: just build something you can charge one customer $2k / month for. Presto!
You're describing the sunk cost fallacy, and the beauty of having spent only three weeks on this idea is that I haven't sunk very much cost at all. I could very easily go for the one that makes 2X.
> If you find the 2x alternative, why waste your time with that when you could just find a 4x alternative and build that instead!
It's a sliding scale. The higher the price point, the longer the sales cycle. If you sell a $5 widget on your website, a consumer can buy that without a moment's thought.
Selling a $100k/yr enterprise software subscription can take a year. Or two. And require having been in the industry for three or four or ten, as other folks in this thread have pointed out.
My goal is to find the sweet spot between pricing my product so cheap that I can't consistently acquire enough customers on my self-funding budget and so expensive that the sales cycle is too long.
Great share but please don't call it "Failed SAAS". I respect what you did but calling an experiment of 3 weeks a failed SAAS is unfair to real SAAS businesses that actually fail. 3 weeks is not enough. You can call it "I tried an experiment for 3 weeks and moving on".
I work on a SaaS product and most of our customers take more than 3 weeks to even make a decision.
Now maybe there are those that are far more spur of the moment, but I'd again come back to the discovery problem... there could be hordes of people who want the thing but weren't even looking at that time.
You will only know if the business was a failure until you have done all of that and that takes at least 2 years in my humble opinion.
What you did was an idea validation that you tried for 3 weeks which btw has a great summary in your writing but I would not call it a failed SAAS. You haven't done the actual grinding. I say this as a bootstrapped SAAS guy who has been grinding for 6 years :)
But why does that matter? The goal is not to conclusively prove that some particular business is beyond hope of success, the goal is to find the one which is successful.
I'm not necessarily saying that 3 weeks is just the right amount of time to spend on a single idea. But if you want to maximize your chances of achieving success in, say, 3 years, what is the right amount of time?
I'm erring on the side of moving on too quickly, rather than waiting too long, because I like to move fast and I've already made the mistake of spending way too long on something.
I think it's really non-obvious, and there aren't a lot of good heuristics that measure how long is long enough -- and it's my belief that most heuristics simply aren't aggressive enough. One of my mottos is "most limitations are conceptual and self-imposed," and I see a lot of self-imposed limitations in the SaaS community, mostly because people have no idea what can be achieved when you set really high goals... not sure why.
I do agree with you FWIW, this was much more along the lines of idea validation than actually running a startup.
But I'm not sure I agree that 2 years is the cutoff...
Consider trying to sell a car or other large purchase. The equivalent to 90-hour weeks on the software would be spending however much time detailing/cleaning the car. There are some fundamentals about customers that detailing the car won't affect. Some people aren't, and will ~never be in the market to buy a car. Some people aren't in the market to buy a car right now. Some people don't, and aren't going to want that kind of car (no matter what it is). Some people don't (and aren't) going to have the money to spend on a car (or that kind of car), no matter what. (But they'll still come around to kick the tires.)
In order to sell the car, you have to get lucky, but even then, there's a semi-fixed amount of time between when someone decides to buy a car, to when they actually buy a car. If they manage to see your car in that period, then you're in luck, and can make the sale, but there's nothing to do that can force a customer to be in the market to actually be in the market to buy a car. (In selling a car, there are tactics that used car salesmen will employ to try and get a customer to buy a car, today, but working 90-hrs/week isn't using those tactics in this metaphor.)
Ultimately, my point is that there's a lot of hurry-up-and-wait in business, and 3 weeks isn't long enough of a wait. Working 100-hour weeks shortens your timeline to get to a product, but it doesn't shorten your customers'.
Customers need to be exposed to the idea of your product, and exposed to your product, and be repeatedly exposed to its existence, a number of times, over several months, in order to be curious enough to try the product. From those that have tried the product, the percentage of those potential customers, for whom the pricing model works for, is slimmer still.
So then, what should the cutoff be? Whatever that cut-off should be needs to be backed by some thought as to how long it will take a customer to manage to engage with the product. That model must take care to have the whole picture. Validation for a bar, who's product practically sells itself on a Friday night (pre-pandemic), isn't timing how long it takes a patron to come in the door and then order a drink, but is a much bigger question of validating that the bar's culture fits in with the location that it's in, and involves being open for O(2 years) in order to see what "normal" sales are like for a given holiday.
I think I placed too much emphasis on the pain of dealing with support in my article. The other motivation was really just that, having thought about pricing, the whole idea of charging more and dealing with support less sounds more appealing than the opposite, and given that I could elect to follow a path that leads to that with little latent cost incurred, why not do it?
Suppose you want to make $10k MRR with this. You need 500 monthly users, right? Realistically, a good chunk of them aren't going to even use the product very often, despite paying for it. This is even more true since it's cheap. You could easily end up with fewer than 100 of the 500 logging in and using the product on any given day. Of those, maybe 5-10 are going to actually need support, and you could easily cover half of that with an FAQ, training videos, etc. So on any given day, you might get 2-5 emails from your 500 customers. Even if it's 10x that, you could probably churn through 20-30 support emails in 1-2 hours just by yourself, or you could hire someone for $500 / month to do it for you. And support requests are going to drop over time as you improve the product, fix bugs, etc.
For the record, none of this is theoretical. I've run multiple profitable saas / recurring revenue projects and I've never had to deal with "drowning" in ongoing support requests. Supporting free users is a different question, and freemium can genuinely be challenging in terms of support requests, but even there it's not that difficult to handle larger volumes of support requests with automated methods to cut down 90% of it. And if you have a handful of problematic customers who are a constant source of stress, you can fire them. They're not worth your sanity, especially for $20 / month.
A better question might be: why are you giving up so quickly? Is it really that you think it's not possible? Or maybe something else going on here?
Here's the lowest monthly price plan for the TinySeed 2020 batch companies currently on the front page [1]: 950, 250, 159, 149, 49, 49, 29, 27, 25, 10, 9
I feel like you think building a company is only about following the good rules. This is wrong, there is best rules to follow to create a successful company, you need to take risks and do new things. Following the 'best practices' is the best way to no be successful.
Regarding your pricing, you are selling to individual developers, so, to people who never buy any professional products, and as other have said, after 3 weeks you can only say that you have not waited long enough to know if you are failing or not.
Also you are too sure about what you are doing. If things are that obvious for you, it means you are very likely missing something
My advice to you, forget about money, build something which satisfies your target users for free an when you will have several of them you will understand what they are willing to pay for. Startup life is long, you need to be patient and persistent, you have not failed, this is only the beginning ;), good luck
Sure, maybe initially as you work out the bugs and missing features. But you don’t go from zero users to a thousand overnight, so users 1-10 will probably have more support requests than 990-1000 because you’ve worked the kinks out as you go.
Also, if you’re able to find people that are willing to open their wallet for any amount then you have very engaged users. As they fully integrate your product into their workflows, you can find ways to increase the value you provide to them with upgraded, higher-priced plans, pushing your average monthly revenue per customer up.
Jason Cohen's essays are a major influence on me and I've been doing this SaaS stuff for over twenty years. But you can always raise your price, especially after doing a lot of learning with a handful of early customers. But it's very difficult to lower your price after losing the sale the first time, I've got first hand experience here.
Three weeks is a ridiculous amount of time to judge success of a startup, you need to invest a minimum of two years and at times during that period it will be an absolute grind. That's why you need to be absolutely in love with your idea or you won't have the energy to continue.
> you won’t find many BI developers who are keen on trying to expense a monthly $75 bill
You really won't, because $75 is way too low to bother with the expense process in any medium sized business. Maybe start at $750 instead? If you don't feel like you could charge that, is the product really offering value?
The book "The Strategy and Tactics of Pricing" was a real eye opener for me as I don't come from a business background. The crux is that don't think about it in terms of costs, but how much value (e.g., time saved, leads generated, etc) you are providing and if the price is worth it from the user's perspective.
> "Plus, my goal is to hit $2k MRR in the next two months"
Why that fast? Is that the right pace?
I wonder what's the right balance between validating things fast and persisting until you make it work.
I am more inclined to the position that he should/I would have worked to make his $20/month product grows into the value of a $100/month product.
People are never keen to spend $75 a month, unless is an investment in something that will make them, for example, earn $500 more a month.
At the same time, there were signs that it could be an idea that he would keep trying for an year and a half, and end up in the same place (I've been there).
How to make this decision?
My timeline is determined by my wife's due date currently. I have no idea if it's the right pace, but I also have no idea that it's not.
Unless somebody comes along and points out why I should spend more time in a really convincing way, I'm going to set an unreasonable and if I hit it, great! If not, I'm probably still progressing more quickly than other people with more modest goals.
> People are never keen to spend $75 a month, unless is an investment in something that will make them, for example, earn $500 more a month.
Very true. I'm just not sure the value I can deliver with this product was ever going to be sellable at $75/mo, given the pricing the rest of the market exhibits...
> At the same time, there were signs that it could be an idea that he would keep trying for an year and a half, and end up in the same place (I've been there).
I've been here too (3 years on one startup, never got off the ground). I'm trying to land in the other extreme now -- moving TOO quickly. Hopefully doing this will help me find some middle ground that's not where my preconceptions paint it to be.
Working 3 weeks on something and expecting it to have some value is totally unrealistic. Yeah, maybe someone somewhere pulled that off, but it's one in a million chance and the lowest hanging fruit has already been taken years ago.
> Working 3 weeks on something and expecting it to have some value is totally unrealistic.
Agreed -- the conversations I was having based on that were more about projected value it might offer rather than the current value. I wanted to see if I could people invested in the idea and my capabilities to deliver it, more so than the actual product as it existed at that time.
One year is not that much for a one man band but a) I believe I know the value it brings and b) even with a valuable idea you're still very far away from a successful product/company.
You should at least give it a try...
I have a public slack where people help each others most of the time, and I also handle all support requests on the chat.
Let us assume I need $100 per month to survive, my Google adwords budget is $40, my AWS /bill is expected to be $45, my overheads are $50 -- how do I price my product ?
Something else which might seem more appropriate in that case is to determine your price based on the value you deliver rather than the cost it takes you to deliver that value.
If your value delivered is less than what it costs you to deliver that value, you have a broken pricing model and there's no way to make it work.
You raise a good point. The challenge is how do you quantify the value. Should I be using the cost of alternatives or substitutes ? Or do you evaluate the actual value delivered by improved efficiency or revenue etc. This could turn into a very deep rabbit hole.
What are the painful problems of the people with purchasing power in that market?
At the initial stage I would be looking for them to pay you anything or agree to pay and optimize the pricing model later.
Also, 150 users seems like a ridiculously small number for any type of company doing custom software (non F500).
...but perhaps I'm just not very learned?
You're about to go through a crazy experience. Instead of choosing startup life, consider making your wife and child the most important things in your life right now. You can spend 90 hours prototyping a startup idea any time but you only get one chance at this.
Key learnings:
- You need to include pricing as a critical failure point from the very beginning when vetting your startup ideas.
- You should be charging somewhere between $50 to $100/mo per user as a bootstrapped startup founder.
- Don't bother trying to bootstrap / self-fund enterprise software.
Frankly, I just disagree:
* Pricing is mostly irrelevant at the beginning. Even Google didn't figure out its business model and pricing long after they were created. The only thing that matter initially is to gradually converge toward something the market want (it's a journey).
* Charging per user is only one of the many many options. It does not have to be that way. Many very successful software businesses don't charge that way.
* Enterprise software is (comparatively) the easiest to self-fund. Most companies in this area are bootstrapped. It takes a single client to achieve ramen profitability for a team of 2 or 3.
Response to edit: I think you make some great points, but I'm not sure how applicable they are to a self-funded solo bootstrapper... how did you launch your company?
My goal is to reach $2k/mrr in the next two months so that I can go full-time on the startup and apply all of my time to making it better / marketing it better, in order to hit escape velocity where my books are completely in the black without having to work a day job.
2k USD per month is nothing to a large company. Forget about the per month part, just charge a flat 100k USD package with 2 or 3 payment milestones over a quarter or two. You can give away IP too. You don't really care, you're not going to build your end-game software product on top of a rushed prototype anyway.
However, you have to meet with prospects (executives). Lots of them. It's tough to even get one call, but once you get there, the one question to ask is: what's your biggest problem? and then improvise. After many meetings, you will see patterns emerge, both in types of problems and potential solutions.