EP 008: How a Bootstrapped SaaS Startup Now Generates $75,000/mo

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Episode Summary:

In this episode I sit down with Dave Nevogt, the co-founder Hubstaff.com.  Dave walks up through his life as a SaaS Entrepreneur and how he started from bootstrapped to generating now over $75,000 per month in recurring sales.

Episode Links:

http://blog.hubstaff.com/test-your-startup-idea/ (what I would do if I was starting a new Saas company and how Hubstaff passes or fails against the checkmarks)
http://blog.hubstaff.com/how-to-find-a-technical-cofounder/ (how I found a partner and why I did 50/50)

Episode Transcript:

Mark Thompson:  Welcome to today’s episode, I’m joined here by Dave Nevogt. He is the co-founder of Hubstuff.com. Hubstuff.com is a business management tool that allows you to manage your virtual and remote stuff by providing tools like time tracking, taking screen shots, activity levels and employee payments. It’s actually a product that we use. We’ve been using it, and it’s almost like the life blood of running our virtual staff. Thank you Dave for joining the podcast.

Dave Nevogt:  Good to hear, thank you.

Mark Thompson:  Before we get started and start talking about Hubstuff and running a SaaS application. Tell me a little bit about your experience. I know you’ve been a serial entrepreneur for over a decade and you’ve run a few different online businesses. Can you just kind of really quickly just start from the beginning and how you led up to creating Hubstuff?

Dave Nevogt:  Yes, I had a, I got started way back in 2004. Right out of college. I’d started a golf ecommerce business and grew that up to about, I think at its peak. We are doing like 1.7 million or something like that. That hit pretty first. It was kind of like being at the right place at the right time, and the right market kind of thing. We grew through mostly paid advertising and that business started to kind of take a downturn as a lot of competitors came in the market around 2009, 2010 time frame. A lot of big money from like golf digest, things like that that were the big name pros came in and really, we saw advertising prices go way up and conversions, kind of go down. Anyway, that business has kind of died down now for the most part. When that started to happen we, I purchased with like five other investors an SEO company that was doing pretty well, and ran that for like five years. Mainly, just as the main operator. I was kind of like the CEO of the business. I think we were doing like 2.5 million at its peak.

During that period of time , I learned how to really run and find software developers and how to really lead a software development team, which is totally different than leading a marketing organization which I had done for the most part in the ecommerce business. From that I kind of sparked the idea to start Hubstuff which is totally software, based SaaS company  and it’s been going great.

Mark Thompson:  Just kind of fast forwarding to today, Hubstuff has been purely bootstrapped by you and your other investors or partners?

Dave Nevogt:  Yeah, I’ve got one partner, Gerald. He is 50% owner. We are both 50% owners split right down the middle. It’s bootstrapped from he and I exclusively. We haven not taken any funding or anything like that.

Mark Thompson:  From your prior apps and software and companies that you were running you kind of reinvested it into this application, right?

Dave Nevogt:    Yeah.

Mark Thompson:  What made you create Hubstuff?

Dave Nevogt:    I always have been on the lookout as an entrepreneur for good products and services, and things that I think that could make money. One of the things that I always struggle with is managing my team, understanding what they were doing. Like I said, back in 2004, I had this, I had to hire a lot of people to run the golf business. I really had no idea how to manage a team of people. I’m just all learning through experience. I had been looking for, this is back, we had an office out in Phoenix Arizona at the time. I was looking for a software, this is probably in 2008.

I was looking for a software that would like basically tell me what my team was doing automatically because I was doing things like having them submit progress reports via email. It was would go okay for a few days and then it would die down. Really I had to try, I’d actually try not to be a micromanager. I’d rather just like spend the [inaudible 00:04:38] my time in the day. Getting my own stuff down and then spending a very little amount of time, managing somebody else and working with them on their projects. I hated the stress of always having to follow up and really understand because at the same time if projects are always going to be delayed and not hitting deadlines, things like that. your company is not going to make as much money as it should.

At that point I had a very released intensive business, the golf business. I was releasing all out DVDs, that kind of thing. It was just a matter of like these things always getting delayed. Anyway, looking for a software couldn’t find anything that really would solve the need of what I was looking for very well. A few more years of that and I just decided to try to make an app that would do the things I would have needed to do from kind of my own personal perspectives.

Mark Thompson:  That’s generally the best, I guess the best way to approach it. When you can build something that you actually can use on a day to day basis right?

Dave Nevogt:    Yeah.

Mark Thompson:   I know, we do the same thing. We are kind of in the same boat in terms of running SAS businesses and when you can create something that’s like, “Man, there is nothing in the market like this.” That’s, but I could use it on daily basis … If I can use it and you could maybe survey some of your list, or other people and they are really excited about it. That’s a win-win for everybody, you know?

Dave Nevogt:  Yeah, it was interesting man. It was like, it was really hard to … It was a hard product to get that, what do they call it? validation, I guess, upfront for, because it was … Its one of the things where it’s like you ask your customers now like, “Yeah, I would use it, as long as it doesn’t suck and as long as its not buggy.” Then its like, how would you? Anyway, it’s just, it was hard to get validation because we are trying to build, now we’ve got five apps, Linux, Mac, windows, android, ios. The web side of the business, it’s a development heavy business.

Mark Thompson:   I’d love, I don’t want to turn this into a interview for me, but I’ll tell you one thing. I’ve been using this tool for years now and, its not the sexiest tool. It’s probably a bit of a hard sell for you. People having to track their employees and all that kind of stuff. Let me tell you one thing, we’ve always notoriously hired from Odesk, or now its called upwork.com. That’s a really good place to find talented developers and designers. We were, everyone, they were all tracking their time in Upwork and it just became so expensive because Upwork takes 10% of everything that you are paying out.

If you are trying to scale, whether it’s hiring one person or up to, we have like twenty five guys. That’s a significant cost. That’s one of the things I love about your tool is, you can have all that functionality and more of being able to … like you said, you don’t want to micromanage them but if you want to scale an online business and have virtual workers, unfortunately there is bad people out there. You need to have tracks and balances in places. I know that we’ve talked a few times in the past where I’m like, “Hey, you know what? Something isn’t right with this guy. This guy is tracking a crazy amount of hours but he is not producing. We need to find out whats going on.” I wouldn’t have been able to do that unless I had a tool like Hubstuff.

Dave Nevogt:  We’ve been hit as well by people and it’s just like, this is like, we own the tool. You would think that they would not try to pull one over on us. It has happened and also you get the other side too where you just get people, developers specifically sometimes are a little harder to relate to, like from a business owner standpoint. Lots of times, software development is not a scale that a business owner has. Its very easy for that particular demographic to kind of take advantage of the average business owner. That’s a area where we kind of focus on. Then the other thing, going back to the Upwork thing. Yeah, that’s definitely true. It can be in the tens of thousands of dollars, annualized if you can look at it that way. The other thing that we focus on that they never will is all the integrations. At least I say, I don’t think they will because they want to keep everything. I would imagine their roadmap is very much keeping things internal and trying to keep everyone on their platform for the reasons that you said, payment and all that.

Our viewpoint is actually to integrate with as many different companies as we can. Integrate with many different payment companies and as many different project management companies and as many different kind of invoicing accounting. All these companies, and really become really, really good at having that time aspect. That’s kind of like our core. Then if it’s about invoicing we’ll send that time out to an invoicing app or if it’s about accounting we’ll send it out to an accounting app. What we can do really well is track the time and then also provide for that time worked.

Mark Thompson:  That’s seems to be your competitive advantage. You are not tool or program diagnostic. You can, obviously like you said, Upwork, they want to keep everybody inside of there. It doesn’t make sense with their business model to go and have you guys integrating with other third party apps. They want to keep you in there. Again, that’s another cool selling point. Now that we’ve kind of talked about your product, lets just dive into kind of the nitty-gritty details of it. its been around for how many years now, two years?

Dave Nevogt:   We started building in 2012, late 2012 and took our first paying customers like in the end of 2013. We are looking at about two and half years.

Mark Thompson:   Whats the growth been like since you’ve launched over the last sort of?

Dave Nevogt:  It was bootstrapped just a little going back, it was bootstrapped, Gerald and I put in like twenty six thousand, thirty thousand to piece on it, of cash to fund the initial app. From there we have basically not made anything, taken any salary or anything like that from the company. Everything that we’ve made we’ve just put back into basically development. Some marketing, I think about fifteen thousand, twenty thousand goes to marketing. The rest goes to development. We are getting the point now. We are kind of like able to take some out which is nice. We are, in terms of growth, like I said, we took our first paying customer back in the end of 2013 and now we are at seventy two thousand monthly recurring. We have a small staffing. We make about ten thousand a month on staffing as well, twelve thousand a month.

We, I think last year or last month we had like eighty five total. Now it’s ramping up, we are actually, its fully transparent. I don’t know if you’ve heard of biometics but we are actually fully transparent. You can see all of the turn and all the growth rates and everything on biometrics.com.

Mark Thompson:  Whats really funny is people don’t realize that SAS companies generally are not profitable for the first year, if ever right? I don’t know what the percentage is but most SaaS companies don’t turn a profit. It sounds like you guys are just about over that hump now, right?

Dave Nevogt:   Yeah, we are. It feels really good because I have a lot. Obviously banking on this personally, it’s …

Mark Thompson:  Of course, its just part of being an entrepreneur. There is risk involved. How large is your staff?

Dave Nevogt:   I have a team of about six or seven on the marketing side. We’ve got four support people and then we have … I think we have about eleven people now, and then you have Gerald and i.

Mark Thompson:   Are these all virtual employees?

Dave Nevogt:   Yeah, all virtual. Most of our, we have support here in the US plus the Philippines currently. Then we have, marketing is primarily in the US. We have one in Eastern Europe and then development is a combination of here in the US plus Eastern Europe.

Mark Thompson:  Let’s talk about your marketing strategy for a little bit. You have six or seven marketing guys. What are they doing, how are they spreading the word about Hubstuff?

Dave Nevogt:   This is kind of something that I kind of, I don’t know, it’s just the way that I manage the marketing side of the business. I manage the marketing side of the business. My partner manages the tech side, which has worked out really well because the main … A lot, some of the product development stuff like the testing and the design aspects and just the UI and the features we want to build is kind of driven by marketing. Outside of that, in terms of the tech, the really heavy tech stuff. That’s all by my partner. My daily kind of job is to grow the company and run the marketing side. I’ve got it basically divided up into channels. It’s like advertising, social, search, we have like word of mouth, viral, we’ve got directories stuff, third party apps and less things like word or that kind of thing. I’ve got one person that owns each of those. We’ve got content. I’ve got one person that owns each of those major aspects.That person kind of drives each of those channels.

Mark Thompson:  The ultimate goal is to get someone into that fourteen day free trial which you offer to, I believe every customer that comes through right?

Dave Nevogt:   Yeah, we don’t have like … Our app is like pretty inexpensive. It’s like mostly the small business, it is … Yeah, we are not like the two year contract, pay upfront kind of access base at all.

Mark Thompson:  You basically charge, you have different plans based on the number of users that you want to track, right?

Dave Nevogt:   Right.

Mark Thompson:  What percentage of people that take a free trial turn into a customer?

Dave Nevogt:   Right now we are at about 15-17%. Some months we get up to like 20%. A lot of that too is like, we have a lot of test organizations. Probably if you look at the customer, like the real customer, that’s based on an organization. Our app supports multiple companies. You mark as an owner of digital kick starter, you might actually have two other companies that you have in there as well. You’ll be like one customer. Really, you are looking at more like, probably like around twenty, lower 20%.

Mark Thompson:  What do you do from an onboarding sequence, just to get people to start using the application, then ultimately getting them into a paid trial or paid plan?

Dave Nevogt:   We use intercom, we just got done editing all of our life cycle emails. For that we use Maildrop. It’s not, we do not have somebody that reaches out to them personally and really tries to get on the phone, and to call them or talk to them. We’ve experimented with that and it’s like, it’s failed pretty miserably. It seems to have almost zero effect. What we’ve learned is that, people really just want the software to be good. They want to test the software, they want it to work, they want it to be user friendly and they want to make their own decisions. This is an application where they are testing other, they are testing apps side by side, and the best man wins, you know what I’m saying?

Mark Thompson:  Mmm-hmm (affirmative.)

Dave Nevogt:  That’s kind of like what, its not like we are going to talk them into our application.

Mark Thompson:   Who are some of the major competitors right now that you are bumping into, is it the freelance websites?

Dave Nevogt:   Yeah, that’s the major one. Those are the major competitors. You got toggle, where you’ve got harvest. A lot of companies just don’t like the whole screenshot thing. If they don’t, then they don’t. That’s the way it is. A lot of … We have the ability to turn all that of too. You can turn all that off on user basis. Sometimes even the appearance of, its just not something they want in their culture. It is what it is. We’ve embraced that and its like one of those things where you cant please everybody. We try to focus on the people we can please.

Mark Thompson:   I understand, especially if you are in a physical office with people. I know, back in the day I worked for a marketing agency. They are like, “We are going to test out this new time tracking solution and its going to monitor everything you do on your computer.” We thought it was a bit obtrusive, especially since we were coming into the office every day. It’s a little bit of a different situation compared to having all virtual employees and really not having any checks and balances unless you have something like this. What are some of the biggest challenges that you’ve had to overcome over the last few years of starting Hubstuff?

Dave Nevogt:  The biggest thing is that this is like my third business now. It’s just, we don’t currently even have up to this point, we don’t have a scalable model where we can say, definitively, “If we invest five, ten, twenty, a hundred thousand dollars, in this model, in this growth model. We are going to have a return on investment over this period of time.” We still don’t have that. we have not, we don’t have that model. Most of the times that happens in paid, we have not found paid to be profitable for us. At least the way that we’ve been doing it that’s all on Facebook, across Facebook, Google, all that. What works for us very well right now is just that viral aspect where you have a freelancer, maybe you part ways or maybe he has multiple clients. He likes the software, he invites other clients on, and that client has three, it’s that viral nature that helps us. Also, obviously, it’s a combination of the different things that we do. like I said, we have a good team of marketers and we are out they are doing all the stuff, all the traditional stuff.

It’s not, we do not call this like an online marketing type of business. This is much more like, I guess a traditional like software based, where you’ve got to do, you’ve got to have a good social presence. People look for social proof a lot on this thing. You got to have a really good social presence, you’ve got to have case studies, you’ve got to have that kind of stuff. We are doing a lot of content marketing, we are doing a lot of search, SEO, people find us generally on Google if they don’t find us through referral. Those are things that are working but unfortunately those things are harder to really pin down and to say, “Spend this and get a return of X.”

Mark Thompson:   SEO has always been kind of like that. You don’t really know for sure what, if what you are doing is working. It’s not like …

Dave Nevogt:   If you change, you cant nail that down the numbers.

Mark Thompson:  Yeah, exactly. Its not like a paid ad or it’s like, “I paid x dollars for this person to come to my site, they signed up,” and its not that sense. For people that are interested, do you feel that software in general is migrating to the SaaS model?

Dave Nevogt:  Yeah for sure. The other thing too is just that like it’s the SaaS model is actually so much easier than any kind of desktop. All desktops apps are, were very painful to build. If we only had the web side of a business. If we only had the web side and had to work with browsers, it would have been so much easier and cheaper to build.

Mark Thompson:  We felt that pain as well. Same thing with WordPress plugins and themes. A lot of, I know that was kind of the craze back three to five years ago. What people don’t realize is that plugins don’t like to speak to each other very nicely and themes. There is all those issues. It does seem like a major shift towards SAS. What types of things?

Dave Nevogt:  That is why too, I work very hard to, I don’t have any … I’m on a Mac right now. I don’t have any downloadable programs that aren’t easily replaced like Spotify or like, you know what I’m saying? I’ve got word, I’ve got sublime text, I’ve got Skype. I have no, like all my incoming software is on the cloud, all my business is on, everything that’s, anything crucial is all SaaS.

Mark Thompson:  Someone who is interested in starting their own SaaS application, what advice do you have for them?

Dave Nevogt:    I would say find, I would say first of all it’s something that we didn’t do, that I don’t have or didn’t do. The most important thing is to understand who you are going to be building the app for. Not only that but also how you are going to find them. If you are able to find five, ten people online in a specific place that you can market to, or even like … I was working to Nathan Barry, he owns ConvertKit. It’s just taken off like, growing really, really fast. He said his main growth channel is kind of just like talking to people. His is more of a direct sales model. If you can find that model then the life of SaaS really is just new customers and new blood. If we didn’t have that for Hubstuff it would be a failure. It’s really about finding that customer base upfront I think.

Mark Thompson:   Do you recommend bootstrapping to a certain point and then finding investors, or finding investors from the beginning or trying to do from bootstrap the entire way?

Dave Nevogt:   I would say, I’ve got a great few articles that I’ll shoot you over in email that I’ve written. These articles really have done very well in the startup communities. I know people would enjoy seeing them and stuff. Basically it’s like, in terms of your first question, just a minute ago it’s like, I’ve got to post right on like the top whatever. Eleven things I look for in a startup. Now, just like all that recurring revenue and that kind of thing. Also in terms of bootstrapping, I’ve got a post on my, on how … What I would recommend is really to find the opposite skill-set.

If you are in marketing, you’ve got to find a developer to be your partner. You’ve got to find somebody in development that, because it’s so hard to not have that other side of the business. Instead of taking and invest your money upfront, I would instead find somebody you are going to work with and have, and just be on the agreement that you are both going to take your time and put it into the business. That person is going to do whatever it is on the development side and you are going to do the marketing. You are both going to not get paid anything till the company is profitable. You can bootstrap that way at least until you have a product that can sell itself and having some sales, because chances of you getting investor’s money upfront is pretty slim.

Mark Thompson:    I 100% agree. I’ll also put these articles in the show notes below the podcast. There is also, I’m reading a book called zero to one by Peter Thiel, which, if you guys don’t know who peter till is. He is one of the first investors of Facebook. He started paypal.com. A lot of what we are talking about here, he talks about in his book how its important to, before you get investments, seed money to create a viable, a minimal viable product to market and show that it can actually sell. Once it does then you can start to scale it up with the investment money.

Dave Nevogt:    Yeah, because the thing is just like, if you don’t have … These businesses, the way the investments work, it’s interesting like from where we are at right now at seventy … We get a lot of investors calling us like probably one per week calling us trying to talk about, they call right now like an introduction, because they are not really interested even investing money in us until we got pretty much hit, like a hundred k monthly. Then, once you get to that point, I always have the conversation with Gerald, it’s like, “Why would we really need an investor once we get to that?” Because we started this kind of as a lifestyle, we are not trying to build the next hundred million dollar company. That’s just not the goal of ours. We are not trying to build the next [inaudible 00:27:34] or the next whatever.

The way it works, to make the long story short is that, you are going to make a lot more, you are going to get a lot better investment return, meaning that you are going to have to give up a lot less equity if you are actually making money. That number goes obviously, that percentage gets a lot lower as you make more money.

Mark Thompson:   Now it makes sense. This is all interesting. We are both kind of in the same boat in terms of what we are trying to do with our SaaS companies. I could sit here and talk for hours. Listen, I know you are busy and I appreciate you coming on to the podcast. Just, if anybody wants to learn more about you and Hubstuff, where should they go?

Dave Nevogt:  Just Hubstuff.com. I have a growth series that I write. I’ve written maybe twenty articles on a, really long in depth articles on how I’ve done it, both on the marketing and the development side. A lot of the stuff I talked about here today is covered there. Just like @Hubstuff on twitter. Dave@Hubstuff is my email address. That’s pretty much it.

Mark Thompson:  I love how transparent you are. I really do appreciate you kind of sharing the behind the scenes look at Hubstuff. For any of you guys that have even just one virtual employee up to a hundred. It doesn’t matter. Definitely check them out, check out Hubstuff, you can do a free fourteen days free trial. I don’t even think you need to put in a credit card. Just put in your contact details and start using the tool. I’ll tell you just right now just from personal experience and this is one of the reasons I wanted to have Dave on is that, I’ve saved so much money from just being able to have checks and balances on my team. That’s one question that I get all the time is, how do I make my virtual staff accountable? This is one way to do it. Thank you Dave for kind of sharing, just about your business and how it got started. I really do appreciate it.

Dave Nevogt:  All right Mark, thank you so much.

Mark Thompson:  Take care.