The article below was taken from SaaS Mag Issue 2. To order your free copy, click here.
Over the past decade, email marketing has continuously demonstrated how powerful of a channel it can be in helping creators grow their businesses. As other marketing methods have come and gone, email marketing has remained constant and is widely accepted and adopted across most online and offline business sectors. As recently as December 2018, email marketing has been reported to show a 4400% ROI due to its ability to convert visitors and extend customer lifetime value inorganically (eMarketer reports that B2C email automation can generate conversion rates up to 50%).
This, coupled with powerful automation, can result in an ability for small firms to grow exponentially for less money than ever before. Now armed with these powerful tools, small firms are better placed to take on larger incumbents and are growing exponentially where historically the odds would not have been favorable.
This is perhaps why Barry’s ConvertKit has proven to be such a success. ConvertKit was born from the recognition that email is one of the most effective ways to grow and monetize an audience base. Several successes in this vein led Barry to put his skills to work and built a SaaS platform to make email marketing accessible through affordable and user-friendly technology. ConvertKit’s mission is to help entrepreneurs share their knowledge as Barry firmly believes that this is the most powerful way to become self-sufficient, independent and capable of building enterprises. This simplification of what is a robust and innovative core product has brought sophisticated email marketing strategies to the everyday end-user and it has not failed to deliver.
ConvertKit started out very much as an MVP. “The very first version of ConvertKit focused on making it easy to create a landing page and then send a series of emails to new subscribers. There wasn’t any kind of fancy landing page builder, instead, it was simply a series of text boxes to fill out content for that area. If you wanted to delete a header, you’d just leave it blank. While this worked it was clunky and didn’t have any flexibility” the company’s blog reports. Fast forward 6 years and ConvertKit is no longer “clunky,” and the business has transformed into industry-leading ESP built on a well-designed SaaS product that is inclusive to users of all abilities.
As the quote demonstrates, it took many iterations of the product to create what ConvertKit is today. Barry mentions how important it is to incorporate what your core customer base wants and ignore the rest. That clear prioritization of customer needs above a company’s own desires is perhaps the recipe to becoming a leader in the SaaS industry.
As ConvertKit marks its sixth anniversary, we sat down with Barry to discuss the business, surpassing $15M ARR (completely bootstrapping the business along the way) and the industry in general. From designer to SaaS CEO, Barry is still heavily involved in product development and predicts a strong core product to be the (not so) secret weapon that will drive their success over the next 10 years. Here’s what else Barry had to say during our chat:
I think there are a lot of SaaS products that solve a problem, and those are fine, but if a product never delights a user, then that company is going to be fighting a constant uphill battle to gain organic customer growth.
How big a role does design and ease of use play in building a great product? And how much does that impact customers coming back?
The answer is a huge role, and not just in customer experience, but also into how a product grows, is sold, is marketed and ultimately how viral a product becomes.
I think there are a lot of SaaS products that solve a problem, and those are fine, but if a product never delights a user, then that company is going to be fighting a constant uphill battle to gain organic customer growth. The sales team is going to be working incredibly hard to drive growth, as opposed to working hard for one or two or 10 customers who are going to tell other people about it and act as ambassadors. How much joy the product brings to users is probably the biggest thing I think that matters for the overall success of how big any company is going to be.
So what you and your team are always working towards is how to make the user experience exceptional?
Exactly. There’s a lot that goes into that. The first thing is: eliminating as many steps as possible. Getting your onboarding process to the point that these core actions can be done in just a few steps. The second aspect is in hiding information that isn’t relevant at that moment, to ensure that first experience runs as seamlessly as possible. We have built plenty of advanced functionality into our automation builder. For example. If you want to add an action, there are three or four options shown to you right then, but there are two or three more that are hidden behind an advanced button. This makes the first experience easy, but also means that once people really start exploring, they’ll stumble upon it or read an article detailing how to use it and where it is, and that will be a pleasant surprise. The idea is that the person coming through for that first use won’t be overwhelmed.
“Look at: How quickly does everything respond? Do you have exceptionally fast page load times? What does that loading experience look like?”
You kind of build layers into the product as the user grows more experienced, essentially.
Yep. Exactly. And then the next thing is just the speed of the app. Look at: How quickly does everything respond? Do you have exceptionally fast page load times? What does that loading experience look like? So, while speed is the most important aspect, it’s not the only critical one. Even as you run into barriers that mean you can’t reasonably make it that much faster, you can use little tricks to make things appear faster. For instance, either pre-loading data or (one that we like to do) gradually load it. Instagram even does this; they start uploading your image while you’re still writing the caption so it feels that much faster. Take a page of broadcast metrics, as an example: you need to load open and click rate and everything for many sent emails. We load the page first, and then have placeholders for all the stats next, and then go through and fill them in as they come in. That way, it feels a lot faster to the person accessing the data.
There are numerous other considerations, like whether you can set the active state on your buttons or on your navigation when someone clicks on a button. There are a lot of little tricks like that that will make the product just more joyful to use, and that customers won’t even notice. In their heads, they just think, “Oh, yeah it’s nice and snappy and I’m able to get in and get the thing done that I want to.”
Do you think this focus on design and user experience is where most products are heading? Is that your focus?
I’d say it’s important to us. A lot of great products are doing this already and of course software designers talk about this and share tips, but many SaaS companies don’t put as much of an emphasis on design as I think maybe they should. It’s one of those things that their users don’t understand well enough to say, “Hey, this is missing. You should put an emphasis on design.” But those efforts are going to show up in your NPS score, and your K-factor will start to represent how many new clients get referred by each customer. Look at tools like Dropbox and Slack with a high referral rate; they have really polished designs and they’ve put just a crazy amount of effort into each part of the experience.
Do you think you have struck a happy medium between ease of use and robust functionality?
Yes, I think we have, but part of that comes from being really opinionated about what we’re going to build and who we’re serving. There are certainly people who would say that we don’t have robust functionality, and those are exactly the people who we’re not going after. Currently, we are specifically excluding advanced users with really complicated needs. When they say, “I can’t do this with your product,” I’m saying, “That’s fine. Go use a different product. There’s tons of email marketing products out there.”
We are here for those larger groups of creators who might have 5,000 subscribers or they might have millions on their list, but they’re looking for a way to just reach those people better. To have simple effective automation rather than something unnecessarily
complex or difficult. So their goal is to set things up in their business that will get them results, and then get back to creating, rather than the types of people who are truly obsessive about tweaking every single detail.
OPENVIEW PARTNERS recently predicted that 2019 will bring a focus on product-led marketing growth, meaning the quality of the product will speak for itself to drive company growth. Do you see this playing out in the coming years? How involved are you today in the product’s development?
With my skill set and my background there are two things that make sure that there’s a certain level of polish and detail (that we didn’t have before), and then really set the direction for the core product. Over the last, say three or four years, I’ve really gone back and forth on which role should I fill. Right now, I’m very heavily in the product CEO camp. And I think I very much agree with the prediction from OpenView that great product is what’s going to drive the SaaS app’s success more-so than great marketing. So that’s where I’ve chosen to spend my time, both over the last year and coming up for this next year for sure. I do still get out and speak at conferences and I write a weekly blog; there’s no reason to give up on those things. But the only way we are going to achieve the level of success we want is through an incredible product, so there’s no better place for me to spend my time.
Do you think that there is a marketing channel with the highest ROI for SaaS companies of your size, or maybe just specific to ConvertKit’s main approach?
I would say from about $50,000 MRR to $500,000 MRR, the biggest or the most impactful marketing channel for us was affiliate marketing. Having a solid strategy there and taking a sales approach to it where you go out and recruit great affiliates, had the biggest impact for us. Now as we start to scale further, we’re still heavily focused on affiliate marketing, but we are looking to other channels that are worth spending time on, which I kind of go back and forth between. One is the marketing-focused CEO. This would have me out doing sales, speaking at conferences, writing blog posts, all those other instances where I’m promoting the mission and vision, and getting out there to have as many people as possible see the product. The other side, based on my background in design, is being the product-focused CEO where I’m leading the product team to rework every interaction, to expand that approach. For instance, in the last year, we’ve really made a push on search engine optimization. We’re still trying to get paid acquisition working. Plenty of people who are much smarter than we are have gotten that working for their companies, and we still have a lot of work to do there. So we’re trying to branch out into other channels, but at least for the moment, I would say that direct or organic referrals and then our affiliate program have had the best ROI.
Regarding growing pains, have you found that the struggle changes based on what point your company is in the scaling process? Are you facing any specific challenges right now as you scale up from 38 employees that you maybe weren’t facing going from five to ten?
I’d say a year ago one of our biggest problems was recruiting great talent for the engineering team. There are so many other problems that you can solve if you have great engineers on board. Once we had a really solid engineering team, we just needed it to be twice as big. Over the last year, we’ve hired five or six great engineers, and that’s made a huge difference in our output and quality of features. There are certainly other things. I think one big challenge is always to identify what actually is the big challenge, because it might not be the painful thing in front of you. This last fall we had both fun new opportunities we could pursue, and some painful problems that we wanted to fix, but we didn’t have clarity on what direction we should go. And we ended up getting our leadership team together with a few of our advisors just in person hammering through all of it. And a gentleman named Ryan Delk, who’s one of our advisors, and just an incredible startup operator, pointed out that, “Hey, we actually have a ton of trials coming in. We don’t need more trials. What we need is a higher trial to paid conversion rate.” He was able to sift through the data that we compiled, and show us that this is the pain point. The trial to paid conversion rate wasn’t obviously painful. It didn’t show up in the form of customer complaint. But when you actually broke it down, it’s like, “Oh, this is a very leaky bucket.” Then by focusing on that, we allowed that number to drive all our goals and decisions for the year. And that feeds all the way through product and engineering, customer success and everything else.
Do you have a distinct marketing and customer success strategy for retention? Or is your marketing mainly focused on acquisition with retention driven by product innovation?
We’re experimenting with different things. It depends on the phase of the business that we’re in. For example, we have a marketing team right now driving a lot of trials and engagement through the webinars, content, ramping up our SEO and other activities. But at the moment, we actually have quite a few trials coming in each month. Our trials don’t currently require a credit card right now, so we’re running between 6,000 and 8,000 new trials per month. That’s a significant number, especially considering we have 21,000 paying customers; about a third of our paying customer base is showing up to check us out every single month. What that tells us is that attracting new trials is not the problem. The problem is the conversion rate on those trials. So right now, our marketing and customer success teams are largely focused on increasing that conversion rate and then also figuring out how to move the needle on specific metrics. The two biggest metrics for this year are trial to paid conversion rate and net negative churn. We’re working on those two numbers to maintain the volume and improve the quality to convert more trials to paid.
Where do you get the most insightful customer feedback?
I get customer feedback from three different places. The most systematic is running a Net Promoter Survey, which means just emailing out how likely you are to recommend ConvertKit to a friend. It’s interesting to see what features people really like and what pain points they’re having, whether it’s specific integration, the support experience or something else. We also often get on calls with those people, or we solicit calls from our Facebook user group and other places. The calls are really where you can say, “Look, I’m not trying to get feedback from everyone, but these 10 or 20 people are directly within our core market; they’re who we want to serve and go after. What are their actual pain points in their daily workflow? So that is really, really helpful. One thing that I want to be careful to avoid is letting the loudest people shape the product direction. So if eight customers have requested a feature, but the feature doesn’t match our product vision, then I will look really closely and ask, “Okay, who are those customers?” And often they’re people who are on the edges of who we would want to serve.
I think that you really have to be careful to not just look for the quantity of responses, but really make sure it’s from the right people. Otherwise, you’ll spread your product thin, you’ll chase after all these different opportunities and before you know it, you have a product that people are complaining about because it has become complicated, bloated, and everything else, all because you didn’t have a solid product direction. You didn’t filter your feedback before taking it in.
Interesting. Have you experienced that before, where you’ve implemented what the loudest people were saying and then found that actually your core user base didn’t want that at all?
That’s a good question. There isn’t a specific time that comes to mind right now. But we do the opposite all the time. Where people are saying, “We need this feature, we won’t switch to your product without it,” for example, and then we just say, “Actually, that doesn’t match with where we’re headed. We’re not building it now. Not to say we won’t ever build it. But certainly not for the next year or two. If you’re up for switching anyway, we’d love to have you. If not, we totally understand.” And we’re surprised by the number of times that people have this show-stopping requirement, saying, “We won’t switch unless you have this,” and then end up switching anyway. So you’re there like, “Okay, well I guess that was not as big of a problem as you made it out to be.” We do have our customers conform to our method and vision of the product, and recommend that if they don’t wanna do that, they find another product.
So for you the focus is really: what are our core values? We’re sticking to these. This is how we’re driving growth.
For sure. One thing that we want to do is build not just an incredibly successful SaaS company, but a very efficient one. We have a goal (and who knows if we’ll be able to pull this off) of working towards reaching $100 million in annual recurring revenue with a team of 50 people. In order to do that, we have to stay laser focused. We have to make sure that we don’t chase after some opportunity and acquire some customers that are going to be very time consuming to support. On the flipside, we have to limit all these different features that we could potentially build to avoid being pulled in too many directions. If we stay true to the kind of creators that we’re serving, then we’ll be able to create a great experience for them and it won’t actually take us 50 engineers and 100 customer support team members and so on and so on. We think we’ll be able to do it at scale more effectively.
Shifting gears, you said that you share your data pretty openly, so I wanted to talk about churn. I’d be interested to know if there’s anything that you’ve done that you’ve noticed has been a significant driver of reducing churn. If there was one thing that you did that was like, “Whoa, that actually really helped.”
The single biggest thing that made a difference was moving from requiring a credit card upfront in trials to not requiring a credit card. Basically, what happens is when someone signs up for a trial where a credit card is required upfront, their default state is that
they’re going to convert—they’re going to get charged. Without requiring a credit card up front, the default state of that client is that their trial will expire, and they’ll quietly go on their way unless you manage to activate them during that time. What that means is: if you’re requiring a credit card up front, there are all these people who are technically converted trials, but they didn’t mean to convert or they’re not getting value. So, they’re going to cancel in the next say, 30 to 90 days. That all shows up as churn. Now some people claim that’s not churn, and they filter it out and whatever else. I disagree with that. I think if someone paid you and then they canceled, that’s churn. On that side, churn is higher, but new revenue is higher because you’re collecting money from people who aren’t necessarily good for it.
Now, going the other way, your new revenue is going to be quite a bit lower because only the people who actively want to pay you are going to pay you. And so that’s the shift that we went to. Essentially, we took the the stance that we want to see that net revenue churn drop, and we don’t want to be dealing with those issues in the support queue. That’s made a big impact. It’s had a lot of good results for us. Over time, our net revenue churn has dropped from c.4%, down to c.2.5% based on that change. Now you can argue that we’re not actually any better off because the amount of money coming in the door is about the same. But we’re able to just keep drilling down into what causes churn and improve from there. So now, we’re looking to add account management, double down on our customer support experience, fix a lot of bugs in the product and just keep driving towards net negative churn.
Have you found that spending any time on pricing and adjusting your tiers has affected churn significantly, or have you not really played around too much with that?
We haven’t, because our industry (the email marketing industry) is so saturated that pricing is largely pretty well established by the big players like MailChimp and others. Our gauge is that we always want to stay within MailChimp’s range for pricing. We have plenty of margin at that price, and so we don’t want to go too much higher than that. And we certainly don’t want to go lower and decrease the price. Throughout this year, we’re going to play around with adding a Pro plan or having some other add-ons, but we haven’t really experimented with changing our core price just because it’s such a big value for us for people to be able to switch over from MailChimp and be paying about the same.
Are you still bootstrapped, or do you think you will pursue funding or exit of some kind?
Yeah. We’re still completely bootstrapped and have no intention to change that. We’ve been profitable for the last three years and continue putting out more and more meaningful profits, reinvesting heavily in the business, and so there’s just not a need to go out and raise funding. Our biggest thing is we never want to be on a path where we have to prioritize growth over our mission of helping creators earn a living. If we raise funding, then we need to make sure that we keep growing at a specific rate and then we also would need to entertain exit opportunities. We don’t want to do that. For the next 10 years we’re just focused on building the best product we can and serving the customers that we have.
This also gives us full control. When something comes along that doesn’t feel like a good fit, we can just say no and that’s it. Rather than saying, “We’d like to say no, but I don’t think our board or our investors will go along with it.”
“Our mission is not to win at email marketing or crush the competition. Our mission is to help creators earn a living, and SaaS founders are creators.”
What is that ultimate goal of teaching everything you know? What do you hope teachers and students will gain from it? I know you’ve touched on this in some past talks, but I’d really like to hear maybe how that’s evolved since a couple years ago.
Teach everything you know stems from our mission. So our mission overall at ConvertKit, my mission personally is to help creators earn a living. So every team member at ConvertKit has a little plaque on their desk that says, “We exist to help creators earn a living.” In focusing on that, then we’re just trying to see okay, in what ways can we help them. We can help them by building tools. That’s what we’re doing through ConvertKit. Or saying, “Hey, here’s the email tool that will help you as a blogger, podcaster, filmmaker, YouTuber, whatever else help you grow your audience, connect with your audience and sell products in order to earn a living.”
Our mission is not to win at email marketing or crush the competition. Our mission is to help creators earn a living, and SaaS founders are creators. My hope is that as someone comes along and finds our journey through working in public and teaching everything we know, they will be able to accelerate their own journey and stick with something maybe when they felt like quitting or whatever else. Those core values and our mission kind of transcends any of the short-term business benefits of secrecy or privacy in that way.