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Nathan Barry talks scaling ConvertKit to $1.2MM in MRR
   

Nathan Barry talks scaling ConvertKit to $1.2MM in MRR

Nathan Barry isn’t the typical startup founder. His company is based outside of a major tech hub (he lives in Boise, Idaho), he’s bootstrapped his business to ~$1.2 MM in MRR, and he’s as transparent as they come (putting all his financials up online for the world to see).

Find out how he’s mastered growth by embracing unconventional wisdom — and why one A/B test almost tanked his signup flow this past year.

Our conversation with Nathan covers the two inflection points that dramatically altered the course of ConvertKit, the decision behind switching to a credit card required sign-up flow, and how he’s increased MRR using unusual tactics.

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In This Episode You’ll Learn:

0:01 — Introduction
1:15 — You’re kind of a paradox — not the typical silicon valley bro. Bootstrapped, opinionated, living in Idaho
2:18 — The story of ConvertKit — how’d the company start?
5:21 — You post all your metrics publicly. Why? Does it scare you?
5:37 — Don’t believe us? Here are all of the ConvertKit financials on Baremetrics
5:57 — The two inflection points that dramatically changed the course of ConvertKit
7:25 — Why narrowing down a particular niche for your business is imperative
9:52 — Word of mouth as a channel for growth. The most useless, frustrating answer Nathan ever received from another founder
11:38 — The first MoM dip in ConvertKit history — what happened?
13:15 — ConvertKit’s experience switching to a credit card required signup flow
14:17 — 90 Days after starting the test, Nathan has to make a big decision
15:40 — ConvertKit changed the name of the company, then changed it back. Here’s why
16:31 — Nathan admits he’s not great at cohort analysis, Amplitude is helping change that
17:50 — Messaging all the way through the funnel is key; ConvertKit learned this the hard way…
18:37 — What is pulse testing? And why has ConvertKit decided to switch to it for the time being?
19:52 — The Salty Six, the part of every episode where we ask 6 rapid-fire questions to know our guests a little bit better
23:16 — Want to see more of what Nathan and the team at ConvertKit are up to? Visit Convertkit.com or NathanBarry.com

Full Transcript:

DR: What’s up growth nation, welcome back to Scale or Die. I’m Dave Rogenmoser, your host, and Scale or Die is the show where we uncover proven strategies from CEOs and growth experts behind some of the world’s fastest growing startups.

Today we’ve got an exciting guest. This is probably my favorite interview that we’ve done here. We’ve got Nathan Barry here. And I’m really excited, Nathan is the founder and CEO of ConvertKit, an email marketing platform helping creators make a living online. ConvertKit just recently ranked as the 72nd fastest growing company in America, on the Inc. 5000 List, and surprisingly, he hasn’t raised a dime of funding.

So Nathan, welcome to the show.

NB: Thanks for having me.

DR: I’m excited to chat. So Nathan, I was thinking about this, you’re kind of a paradox to me in a way. ConvertKit has grown to over a million dollars MRR, most of it in the last three years.

NB: Yep.

DR: Seems like things kind of shot off there. But you’ve only got 25 employees.

NB: 35.

DR: 35 okay. 35 employees which is still–

NB: There’s 10 of ’em we shouldn’t forget about.

DR: Yeah yeah, which is still not a ton, and yet on your Facebook, you know, if I look at your personal life, you live on a farm, you do a lot of woodworking, you build gravel roads, and you seem like just kind of this normal guy, not this tech mogul.

Do you feel like you’re doing this differently than a lot of folks that you see out there?

NB: Probably. But I think I’m so much in my bubble, that it doesn’t stand out to me that much. Yeah, I’m probably as far as you get from a Silicon Valley bro, like in the startup world.

DR: Yeah, yeah.

NB: It’s fun that way.

DR: Very cool, well that’s exciting to see. I feel like you’ve got strong opinions on how to grow companies, and you’ve got, you’re just you, which is really nice to see, it’s cool to see that come out in the company, and I’m excited to learn more about that.

So tell us about ConvertKit, when did you guys start? Who do you guys sell to? What’s your business model? just a bit of a background there.

NB: Yeah, so ConvertKit started, well I guess a little bit before that, my background is as a blogger, so I wrote a blog teaching people how to design iPhone and iPad applications and started teaching people about marketing and all that, and that’s how I got into email marketing.

And then I started ConvertKit to, basically because I was so fed up with MailChimp, and I wanted something built specifically for bloggers and online creators, rather than for every kind of small business out there. And so I started ConvertKit five and half years ago.

Very conveniently, if you’re gonna start a company, pro tip, January 1st of a year is a great day to start a company.

DR: Why’s that?

NB: ‘Cause then you always know how long you’ve been around.

DR: That’s true.

NB: The math is really easy.

DR: That’s true.

NB: So January 1st, 2013, I started working on ConvertKit. So it’s been five and a half years now. It was slow going at first, and then about a year and a half, two years in, I kinda pushed in, went all in on it, instead of just doing a side project, and then we’ve been growing from there.

DR: What did you not like about MailChimp? What could it not do?

NB: There were a couple things, one I was selling products. So I had a couple of e-books that I was selling, and I was blown away at how well you could use email to sell products online.

But I couldn’t keep track of who was a customer and who wasn’t. Like they didn’t have a concept of tags. I had people on two different lists, and I had duplicate subscribers, and I asked MailChimp how to do it, and they explained this whole method to me, and I was like, that’s great.

And then I realized, wait a second, I’m now paying you for the same person twice. No wonder you’re recommending this solution. And so as we got into that, that was frustrating. The thing that I found, is at the end of every blog post if I had a post on how to use Photoshop for web design or something like that, if the call to action was like, join my newsletter to get the latest design tips, that would have one conversion rate.

But if I swapped it out, instead, for an opt-in that was, hey put in your email address, and I’ll send you all the templates for every example in this tutorial, the conversion rate would be two to three times as high. So just the idea of content upgrades specific to that article. And that was really a pain to put together in MailChimp.

DR: Interesting.

NB: Now it’s much easier. Over time, there are so many opt-in plugins that have come out and made that easier, but I felt like that’s something that should just be built into the email platform. So even little things, like we built into our WordPress plugin, the ability to, in a particular post, say hey, this is the default or this is the default for this category in WordPress.

But for this particular post, I wanna swap it out with this other form. And you’re not embedding, it’s a one-off form. It’s just a scalable, solid system.

DR: Very cool, and so you post all your metrics publicly.

NB: Yep.

DR: I check it maybe once every two months or so. At the beginning, when we first started Proof, I was in there every day, like what’s–

NB: And then you realized that didn’t help your business.

DR: What’s Nathan doing, then I was like, I know more about his business than my own. But it’s cool that you do that, and we’ll probably post the link to that, after this video, if anyone wants to check it out. And I was looking at that, and you started, what, five years ago?

NB: Yeah.

DR: Five and half years ago, and then everything changes about three years ago, and you go from kinda sputtering along to 10k MRR, to adding net $25,000, $50,000 MRR months.

Baremetrics2

NB: Right.

DR: What changed there? It’s a pretty dramatic inflection point.

NB: Yeah, so there’s probably two inflection points, to highlight in there. The first one is, we were doing about $1500 a month in revenue, and that was either flat or a little bit of a decline.

Everyone talks about how wonderful SaaS revenue is. It's recurring, it's fantastic. And if you don't replace what's walking out the door, then it does decline over time. Click To Tweet

And so we were in that state of a declining, and a friend of mine said, basically he convinced me, it was Hiten Shah from Kissmetrics and Crazy Egg. He and I had a conversation, the gist of it was basically, you gotta either do something else or really give this the time and effort that it needs to make it happen. And so, I actually put a bunch of my own money into ConvertKit. All of our savings, which is $50,000, and then made it my full-time thing. So shut off the blog, stopped messing with all of that. I was gonna let the e-books and everything go into, like a passive mode. That meant it went from 10 to 12k a month down to 2k a month, pretty quickly.

Then I started direct sales, started reaching out to people. Instead of using content marketing to sell, I started selling one-to-one and talking to bloggers I knew.

DR: So how did you do that, was that just grab an email address, pop it in Gmail, say hey, check out this thing?

NB: Yeah. I mean, not much more sophisticated than that. So the first thing that I had to do was to narrow down a particular niche that I was going after. Right, it’s easy to make a product that’s just email marketing. And you’re like, email marketing for everyone.

DR: That was your problem with MailChimp, is that it was email marketing.

NB: Right, and so but I was selling ConvertKit as email marketing. Because you don’t wanna exclude everybody. Or you don’t wanna exclude anyone.

And so the easiest advice to give, is, oh you gotta pick a niche and dive in on that. And it’s the hardest advice to take, because, you’re like, oh but what if this person signs up, and they come to the sales page, and they’re like, oh I would sign up, but that’s email marketing for bloggers, and I’m not a blogger, and so I’m not going to. And so, you just have to actually take that advice.

Narrow it down, and in choosing a niche, I was able to change all the messaging, like the sales copy starts to write itself.

The way to find your own niche, let’s assume that you have 30 customers, 50 customers.

Just pick your five best customers, and then say, okay if I were to draw a circle around them, who else would be included in it? Click To Tweet

Are they an e-commerce business? And so what’s unique about the business? Like, okay it’s on Shopify, it’s, they’re doing at least $50,000 a month in revenue, you know, some of these things that we’re going to narrow it down and start to find, okay let’s find more people like them. And the great thing is, then you can use that person as an anchor to go get more. So that was the first inflection point, ’cause it’s really really hard to go from $1500 a month to $10,000 a month.

DR: So that was the first inflection point. You get to about $10k, July of 2015?

NB: Yeah 2015. So two and a half years.

DR: And then something else changed there.

NB: Yeah. So I had a conversation with another SaaS founder, and he had pulled off, he’d gone from $2500 a month in revenue to $50,000 a month in revenue in 12 months.

And he had a public blog post about it. And I ran into him at a conference, ’cause I saw that, and oh man, that would be absolutely incredible, to pull of something like that. Like that’s fantastic. So I was like, even if I could pull off a portion of that. And so I was thinking, there’s gotta be some secret to this that’s not in the blog post, let me find out more.

image description
“And I asked him, okay what was it, how'd you grow? And he said, word of mouth. And I just remembered thinking that is the most useless, frustrating answer you've ever gotten.”Nathan Barry, ConvertKit

Because as a founder, what’re you supposed to do with that? Awesome, I’m gonna, you know what, I totally forgot to pull the word of mouth lever, and I will do that, and then I will see growth. And so, word of mouth, though important, does not work when you don’t have any customers. But then what happens, once you use the direct sales, and we got to about that $10k a month mark, then word of mouth started to be an actual thing. And I was like, oh I’m noticing that people are coming around and signing up. And so that’s when you just noticed that each sale started to get a little bit easier.

DR: Conversion rates started going, start to see a little more traffic on your site.

NB: Yeah, it’s still very little, it’s still mostly from the direct sales and that kinda thing, traffic on the site was still pretty low, but it’s starting to work.

And then in July we, actually on the same day. I’d worked on each one for a while, but three accounts signed up on the same day. I don’t know what order they signed up in, but had they been in the correct order, they would’ve been our biggest account ever, our new biggest account ever, and then our new biggest account ever. So we added $5,000 in MRR that day.

DR: Was that through direct sales?

NB: Yeah, all through direct sales. Yeah, two were connections, and then one was through some cold outreach. So we went from $10,000 to $15,000 a month in MRR in a day.

DR: That’s amazing. Diving back into your Baremetrics. You guys have grown very steadily for three years, and then about three, four months ago, there was the first dip there’d ever been. What happened there? And I know you guys ran an experiment, and just give us the inside scoop. Why did your MRR drop the very first time, and what’d you learn from it?

Baremetrics1

NB: Yeah so, it was an interesting rollercoaster. Our business is not as consistent as we’d like it to be. Obviously, revenue always goes up, that’s what I would say. We may have a bad month, but no matter what, it’s always higher than the month before. So in March of this year, we’d done our best month ever, where we’d put up a little over $70,000 net new in a single month.

DR: Was that your biggest month yet, net new?

NB: Yeah, we’d done $50k three times, but normally we did 25 to 35, like 25 to 35 net new is pretty normal for us. Because our churn runs $40 to $60,000 a month, just as you run 6% on a million bucks.

March, we did our best month ever, and we’re like, okay, this is all working. And summer is always slow for us. And I think, kinda having this prosumer customer, where it’s like, I’m all about my business, except when the kids are outta school, and then it’s time to do something else. So we had that first drop.

Well, so summer is normally slow, where we’d put up $15 to $20k in net new a month. We changed our funnel in May, end of April, to go from credit card required, so it’s a 14-day trial, credit card required, and we changed it to a 14-day trial, no credit card required. And as expected, we started to get way more trials. Going from 2,000 trials a month up to 5,000 trials a month. And the conversion rate when way down. You know, all the things that you expect. And we waited and watched it. In hindsight, we should have A/B tested it. But it’s so deep and through the whole funnel.

DR:  It’s a hard thing to do.

NB: It’s a really hard thing to A/B test. Especially ’cause all of our onboarding about, you know, 14 days in, after you’ve done all this other stuff, it’s trying to get you to add a card, and the way that we built some of it just made it especially hard. So, it was one of those things, we’re watching the numbers, we’re like, I don’t think this is going well, but, you basically look at 90 days after starting the test, churns should start to drop significantly. Because only the best people are adding, are adding credit cards.

DR: And what was the goal of it? Was it more around churn, or was it more around growth? Obviously, those are correlated.

NB:  Yeah, I mean it’s both. The goal is higher net new MRR. And then more efficient funnels all across the board. And so it was like, how is this affecting our webinar signups, how is this affecting? Like some of our webinar registrations just went through the roof. I should say account creation, live on a webinar. We had some webinars.

DR:  ‘Cause you’re pitching just start this thing right now.

NB: Start this trial right now.

DR: No credit card.

NB: So we’d go up to like 40%. Which is just insane.

And we were dialing in a lot more things on the webinars as well, but, we were watching those numbers closely, and it just was not looking good. June, we were heads down, so we run an event every year, called Craft + Commerce. It’s 300 people, in person, so that’s a whole thing.

So we’re like, okay June’s down, ’cause we’ve been focused over here. We had our huge feature release on July 1st at the conference. There’s a whole bunch more, we changed the name of the company and then changed it back. But we ultimately knew that short-term, it was costing us revenue. And so, basically early August, we rolled it back, and we went to requiring a credit card up front. And so you’re like, okay was this painful in the short-term because all the credit card required people, who signed up in April, I guess through April, were still churning out heavily.

And then we went the other way, and these people, who had put in their credit cards, and were much less likely to churn, were driving that revenue churn down. So we dipped down to 1.6% net revenue churn.

DR: With that cohort? Or with everybody?

NB: Overall.

DR: Yeah.

NB: I’m still not super good at cohort analysis. In this time, we rolled out an analytics tool called Amplitude.

DR: We started using Amplitude here, recently.

NB: Yeah. And it’s a lot of work to get all the data into it correctly. You know, I’ve got a contractor that I pay a significant amount to just to continue to chip away at getting all the data into Amplitude. So it’s one of the things, where I still don’t fully know the answer to it.

DR: So what’re your takeaways?

NB: What’re my takeaways.

DR: As best you can see right now, maybe you’ll have a different answer in six months, but why didn’t it work? And are there certain companies that you think it works for, is there certain things that you should’ve done? Should you have had better activation in the app?

NB: Right.

DR: Or what?

NB: So, we rolled it out and then fixed a bunch of things. So for example, we didn’t have the best communication, and we have a small team, so this is especially bad.

We didn’t have the best communication between product and marketing in that case. So, marketing said, hey can you do this? Product said, yeah, hold on, let me get it into the schedule and then did it and said, okay it’s done. And marketing went, oh shoot. Okay.

And then product is like, what’re you annoyed with? We did what you asked us to do. But what happened is, we had, in order to get the lift of no credit card, to get the full value from it, you need to message that all the way through, from the home page, and so the home page didn’t have any of that.

DR:  It didn’t say no credit card.

NB: No credit card.

DR: Which is yeah, you’d get a big lift

NB: You need that.

DR: At the front.

NB: Yeah, now the biggest lift it’ll give you, is in that moment where they don’t hit the credit card, you know. So we didn’t have that lift initially. And there were three or four other things like that, where the messaging wasn’t quite right or the add your credit card even. So it took us awhile to sort all of that out.

Probably took us a good 30 days to clean up all of that stuff. So the first takeaway, well one, get it to the point where you can run it as a test. Even if it’s somewhat messy. We ended up switching to doing a pulse test. ‘Cause we still decided it was too much work to get it to where we could run a true A/B split test. So we started doing pulse tests, where, this is actually what we’re in the middle of right now. For a week, we’re running it no credit card and then a week with credit card, and back.

DR: Yeah, yeah, that makes sense.

NB: And back and forth, and I think we’re on our fourth week of that.

DR: So you’re still giving it a shot.

NB: Oh yeah.

DR: You’re not totally traumatized by it.

NB: Oh no, we’re constantly experimenting.

DR: And you gotta do that. It’s like, you know, what if it would’ve worked amazingly, and it would’ve changed your entire business? It’s like you gotta take those bets, and this one still might pay off.

NB: Yeah, some version of it will pay off. Our onboarding is radically better, because we got away with some fairly mediocre onboarding because we were taking credit card up front. And so people were staying but not fully activating. But we weren’t noticing that, because they were paying us, and then they’d cancel after five months, and we’re like, why’d they, oh they didn’t do anything in the app. And so now, we’ve learned a lot because of it. But there’s still a long way to go.

DR: Yeah, yeah, alright, I’ll be interested in following up on that. Alright well, we are in the final few minutes here. We’re down to my favorite section of the show, called The Salty Six.

NB: Okay.

DR: I don’t know why it’s called Salty, but it kind of alliterates with six, and so these are six rapid-fire questions for you to answer, for us to get to know you better. A little bit more of what’s happening inside. So you ready?

NB: Let’s do it.

DR: You nervous?

NB: Should I be?

DR: I don’t think so, this should be fun.

Okay, number one, what do you do for fun?

NB: I play soccer, and I build things.

DR: And you do a lot of the little wood carving stuff I see.

NB: Woodworking, yep. I like a CNC machine, ’cause I get to combine woodworking and computer graphics and robotics.

DR: That’s cool, okay.

What’s the best business conference you’ve gone to?

NB: The business conference. Ooh, okay, I’m gonna give two, ’cause I actually think it’s mine. Like legitimately, I think that is Craft + Commerce

DR: Love it.

NB: …is the best one. But a lot of what we learned, to make Craft + Commerce the way it is, came from Chris Guillebeau’s The World Domination Summit, which is only going for two more years. They’re gonna do a 10-year run–

DR: I’ve heard big things about it.

NB: It’s amazing.

DR: Very cool, love it.

What podcasts do you listen to? Business or personal.

NB: Yeah, I like WorkLife by Adam Grant, The Tropical MBA, with Dan and Ian, Ian lives here in Austin. Tim Ferriss Show. Those are probably the big ones. Yeah, Tim gets into some stuff, like there’s an episode with Jason Fried from Basecamp. And they get into this whole thing about prairie restoration and you’re like, that was fascinating. I loved every minute of that, and I wouldn’t’ve known to go off and search for that.

DR: Amazing, love it.

What book are you reading right now? What’s on your nightstand?

NB: Oh man, I have a couple. I just finished Radical Candor, by Kim Scott. We read that as a company, it’s really good. We’re trying to build this, we are building, actually Inc. Magazine just did a story about our culture of direct feedback. So it was fun too.

DR: Yeah, I saw that.

NB: Fun to take some of those ideas through. I wanna say, American Kingpin, about the Silk Road. That was a really fun one that I just finished. And then Principles by Ray Dalio. Those are the three that–

DR: That’s a good one as well. I’ll have to check out the American Kingpin.

Alright, number five, Michael Jordan or LeBron?

NB: Lebron.

DR: Okay, and number six, if you could invite one person to a dinner party, dead or alive, who would you invite right now? Make it an interesting night.

NB: I think I gotta go with the first person who came to mind, which is Jason Fried. ‘Cause I’ve just been a fan of his stuff for a long time.

DR: You remind me of Jason Fried.

NB: Yeah?

DR: Like he’s opinionated. Bootstraps, you know, hold onto these companies until the end of time kinda guy.

NB: Yeah, I think he’d be a fun conversation. I’d be fascinated for us to find all the things that we disagree on. Someday he and I will do a podcast episode, not on the amazing things about Food Chef and companies, or everything we agree on, but instead, finding stuff that we disagree on.

DR:  Have you ever met him?

NB: Yes, yeah, I took the How We Work Workshop at their office.

DR: Nice, nice, love it. Well that’s all we got. There we have it, Nathan. Thank you for being on Scale or Die. This was awesome to have you here, and people wanna find out more about what you’re workin’ on, where should they go find you?

NB: ConvertKit.com has everything for the business, and then NathanBarry.com. I’ve got the full, you can actually go back and read blog posts, all the way along, over the last five years.

DR: Some good ones there, and you’re constantly referring back to them, which is cool. Alright folks, thanks for watching. We’ll see ya in the next episode of Scale or Die.

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