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Everything You've Learned at MicroConf is Wrong*

Chad DeShon

@BGTables. @RoyalsUmp. Software Engineer. Royals Fan. Board gamer.

Chad DeShon

You'll learn:

  1. Why recurring revenue and annual plans are overrated.
  2. How to make money charging less.
  3. Why your podcast player's settings are broken.

Chad Deshon

Definition of the word Microconfy

Chad worked as a software engineer for 7 years and loved it, but wanted to do something more microconfy. He launched a B2B SaaS, charged more than he was comfortable with, and took sales calls with Fortune 500 companies.

His microconfy business - BromBone, a SaaS that helps serverless Javascript websites with SEO - worked really well! His business hit $20k MRR and Deshon's focus shifted to side projects.

Deshon sold BromBone to do the exact opposite of a microconfy business: physical built-to-order board game tables shipped on semi trucks to board game enthusiasts.

BoardGameTables.com

BoardGameTables.com sells high end custom tables for an average of $3,500. Their June 2016 Kickstarter raised $2.6M ("I don't know about you but that's a lot of money where I'm from").

BoardGameTables is the anti-microconf business. This talk is about Chad Deshon's experience on what works well in BoardGameTables that goes against Microconf wisdom so you can think about your business from a different angle.

Contact Chad Deshon at chad@boardgametables.com.

1. Recurring Revenue is Overrated

Recurring revenue is overrated because it doesn't all recur - some of your users churn out every month and need to be replaced by new customers to keep revenue at the same level.

As you grow, your revenue will flatten out as your churn rate goes up and growth rate goes down (growth_rate == churn_rate). When churn equals growth, it's not the end of the world! Your business is still making money, it just isn't growing.

Instead of looking only at recurring revenue as your financial metric for success, consider lifetime value (LTV) - the net profit you get over your entire relationship with a customer. For example, if you make $30/month from a customer that has an active account for 3 years, their LTV would equal 30 * 12 * 3 = 1080.

In one-time sales, you get to collect all of a customer's LTV up front. If LTV is higher than the cost to acquire a customer (CAC) and the cost to give that customer what they ordered (fulfillment), then you make a profit (profit = (LTV - CAC - fulfillment) * number_of_customers), even though growth_rate == churn_rate.

In one-time sales you might not have customers lined up to pay you next month, but revenue is still predictable. How many tables are you going to sell in May? About the same as you sold in April! Your SEO and marketing engines are still working, so new customers will still be able to find you.

An advantage of recurring revenue is that it gives you more levers to influence LTV: decreasing churn or increasing expansion revenue (charging your existing customers more through upsells or cross-sells), but you pay for that advantage with delayed income and a harder sale.

In either of these models, charge your customers when you've delivered value to them.

2. Annual Plans Are Overrated

You might be tempted to charge up front and get it spread out, but those are literally opposites. If you want to, you might be tempted to use annual plans.

When Deshon sold BromBone through FE International, he found that sellers wouldn't give him full credit in valuing his business for users on annual plans. Annual recurring revenue (ARR) is sometimes considered less valuable than monthly recurring revenue (MRR) because ARR can mask churning problems. If your software sucks, you can still retain them for a year!

It's much better longterm to fix churn at it's source: make your product consistently valuable to your best customers.

Of course, there are benefits to having annual plans. Some customers are destined to churn (like customers that go out of business), so it would be better to get money from them upfront. Customers that go out of business are bad customers, though, and your path to growth isn't squeezing money out of your bad customers, it's making your product as valuable as possible to your great customers.

If you aren't restrained by cashflow, give serious pause before offering much of a discount for annual plans. Make sure you don't just offer annual plans because that's what everyone else is doing, and make sure you're not masking churn problems from yourself. A user on an annual plan has churned not when they stop paying you, but when they stop using your product.

3. It is Possible to Move Down Market

Moving down market is possible, and is different than charging less.

When Deshon launched his Kickstarter for a new table at a lower price, the table was clearly differentiated (that's business speak for "not as good"). This cheaper table opened up new customers who were never going to buy the more expensive table.

Deshon's high end tables lost some sales to cannibalization, but they also gained sales because of greater brand awareness.

Don't start your business downmarket, but if you think you can launch a product that's 1) differentiated, 2) appealing to a new and larger audience, moving downmarket can grow your business with more work.

4. Overrated: B2B = Just Show Positive ROI

A big reason that people recommend starting a business-to-business (B2B) business is that if you can just show a positive return on investment (ROI) to customers then businesses will buy from you.

For example, if you sell a tool for $100/month that increases an ecommerce site's profit by $1,000/month, you can very easily sell ecommerce sites on your product. It's a no brainer.

In practice, B2C sales based on positive ROI aren't that straightforward. There are unknown costs in using a new product: setup expenses, opportunity costs, attribution problems ("was that new revenue really because we're using your product, or would we have made that money anyway?").

Business-to-consumer (B2C) businesses, however, don't have to show a positive ROI. Consumers can buy things because just they're cool, not necessarily because they make the consumer more money.

"Look at this thing in the pretty picture. Do you want the thing in the pretty picture? Give me money and you can have the thing" is a perfectly reasonable and reliable B2C sales process. The B2C sales process doesn't have to be logical.

ROI calculations are tricky, but people can want anything. Even in B2B sales, it's ultimately a person making the sales decision. If you can make the person in a business want your product, that desire can be more valuable than an ROI calculation.

5. Listen to Podcasts at 1x

Seriously. Relax. Take a deep breath. You don't have to cram information into your ears as fast as possible. Use the slower speed to allow your mind to wonder. To have its own ideas and go on its own tangents. It will be ok.

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