Hiten Shah, Co-founder, Crazy Egg
Setting the Bar High
The prolific co-founder of Quick Sprout, Kissmetrics, and Crazy Egg shares the key to a successful product: nailing your customer’s biggest problem.
Three entrepreneurs walk into a bar. While it sounds like the setup of a joke, the punchline of this scene is actually a pivotal moment in startup history. It was in 2010, at a bar in Southern California, when Hiten Shah, Patrick Vlaskovits, and Sean Ellis coined every founder’s favorite buzzword—growth hacking.
“Sean Ellis is…the owner, the father of the term, for sure,” Shah says. “So I wouldn’t take much credit for it, besides being at that bar and helping think through the ideas that he had to come up with the term.”
Attribution details aside, that iconic bar scene is the perfect demonstration of the influence Shah—a serial entrepreneur, investor, and advisor behind some of the most influential products on the market—has had on the startup world. He refers to it as one of his “the rest is history” moments.
“There’s been so many of those in my life,” he says. “It’s just being at the right place at the right time and having the right conversations, to be honest with you.”
But of course, there’s a little more to it than that.
Pioneering Internet Marketing Trends
Glance around the startup landscape, and you’re bound to spot Shah’s work. The prolific entrepreneur is behind three well known SaaS businesses—Crazy Egg, Kissmetrics, and Quick Sprout—and has advised or invested in several other companies, including AppSumo, Buffer, and Latergram.
And yet, Shah claims he has no career.
“I don’t have a job,” he says. “I don’t have a career. Since I was 5 years old, my dad told me I should be an entrepreneur, so here I am.”
In fact, the closest thing Shah has ever had to a traditional job was when he was in college and interned at Masimo, a medical devices company that started in a garage. Today, Masimo’s fingertip pulse oximeters are sold in Apple stores.
After college, Shah started his first company with his friend (and now brother-in-law) Neil Patel, who was still in high school at the time. With Shah’s business acumen and Patel’s tech skills, the duo launched a consulting company selling internet marketing services. As that grew, so did their software projects, until eventually, they focused all their time and energy on the software and powered down the consulting.
Today, Shah and Patel remain business partners on multiple projects and the pair have become almost synonymous with the term “internet marketing.”
“There’s three major trends in internet marketing that we’ve definitely pushed forward,” Shah says. “You could say that we pioneered, created, invented—whatever you want to call it.”
The first of those trends is the heat map, a visual representation of a user’s attention and actions on a webpage. “We were the first to popularize it with Crazy Egg,” he says.
The second is people-based tracking in an analytics product, which allows you to follow each individual’s path along the customer journey. And the third is the single-question survey popup on a website. “And now, obviously, these three things that I talk about are everywhere, right?”
These days, he considers himself more product-minded than marketing-minded, spending time on his new brand, Product Habits, where he teaches people how to create software. He’s also focusing on his latest product, FYI, which helps you search and organize your documents across all the apps you use, including Dropbox, Google Docs, and Slack.
“I love to be able to create something that actually helps people,” Shah says.
Cracking the Code to Success
Given Shah’s track record, it’s tempting to try to figure out his formula, the secret code to bringing SaaS products from fledgling ideas to stellar successes. But Shah insists there isn’t one.
“I don’t like being dogmatic about most things,” he says. “I’ve learned that the hard way. The more stuck you are in your ways, the less likely you are to win.”
Typically, when Shah has an idea for a solution to a customer’s problem, he tries to keep things efficient and work with engineering teams he’s worked with before. Even though he’s known for software products, Shah claims that neither he nor his co-founders are technically skilled.
“I definitely fake it,” he says. “And you wouldn’t believe how easily I fake it. … I have to understand these things. This is my business, right? I created these things. I love product. If I don’t understand how these things work, then, even though I can’t write code, I need to understand the nuances of everything.”
That means having a grasp of software and technology, as well as being aware of what his engineers deal with every day. From there, the process varies, but Shah will often pursue a hybrid of outsourcing to software development companies and doing in-house engineering management, as well as having some engineers in house.
But if you focus too much on the product development side, Shah says you’ll miss out on the most essential factor of whether a product succeeds. “To me, what’s more important is nailing the problem that people have.”
Problem Solving: Are You Selling a Painkiller or Vitamins?
How you approach that problem can look different depending on your skills. If you’re a salesperson, Shah says, go try to sell the product before you’ve even built it. If you’re good at product, design, and research—like he is—then go research the problem, build prototypes, and conduct user testing to hone in on the problem. And if you’re a marketer, go run Facebook ads testing different landing page variations until you get it right.
The methods may vary, but the goal is the same. “You just have to know that you need to find the problem that people are willing to pay for,” Shah says. “And you have to make sure it’s the most important problem they have. As many would call it, you know, it’s a painkiller, not a vitamin.”
So how do you know if you’ve created a painkiller people must take to alleviate their aches, or just a vitamin people might forget about? For Shah, it’s all about unsolicited positive feedback, which he’s already received for his FYI product. “That’s when you know you’re onto something.”
It’s Not What They Want—It’s Why They Want It
Entrepreneurs often follow common advice to survey customers on what they want, only to get stuck in an endless loop of surveying, iterating, surveying, and iterating—with no success to show for it.
Others disparage the idea of product development based on customer feedback, pointing to the famous quote attributed to Henry Ford: “If I had asked people what they wanted, they would have said faster horses.”
And while there’s no proof the automotive tycoon ever said that, we still wanted to know what Shah thinks of it.
“I hate that quote,” he says.
The problem with the notion that you should ignore what customers say and just create what you think they want is that it misses the point entirely, he says.
Shah gives an interesting example: Let’s say you’re developing a document tool, and a customer tells you they want to be able to paste a YouTube video into the document and have it show up.
If enough customers requested this feature, most people would go ahead and add it to the product. But, instead, you ask the customer, “Why do you want to be able to do that?”
Maybe the customer only wants the YouTube video to show up in the document because when they paste a link in the document, it doesn’t show up as a link. You see where this is going? Once you know the customer’s pain point, you can think of a simpler solution. In this case, just make the links clickable.
“So I would say that what the customer says is not as important as why they say it,” Shah says.
To bring it back to the apocryphal Ford quote, if people had said they wanted a faster horse, then the next question should have been, “Why do you want a faster horse?” To which the reply would have been that they wanted to get from point A to point B faster than a horse could take them. From there, the entrepreneur can create the best solution to that problem.
“It’s not your job to get stuck in their construct,” Shah says. “It’s your job to invent the new thing that they get excited about that solves the problem better than the horse.”
Bottom line: Ask your customers what they want. Then dig deeper to find out why they want it.
“I can’t stress that enough,” he says. “If you don’t solve the number one problem your customers have, don’t even—just get out of business. Don’t do it.”
Shah’s Failed Products
Before you think Shah strikes gold every time, he’s had his share of products that didn’t pan out. “I have failed when I got a fundamental thing about the customer wrong that I built the whole product around.”
In 2005, he and Neil Patel built one of the first podcasting advertising networks, Fruitcast. The service automatically inserted 15-second ads into podcasts. The problem? They were charging advertisers a $250 CPM (cost per thousand impressions)—way higher than what radio stations were charging for ads.
“We didn’t know that,” Shah admits. “That’s bad. It was horrible.” There was no proven ROI from podcasts yet, and there they were charging more than radio rates.
“We didn’t go talk to advertisers,” he says. “We just assumed we were going to charge something and podcasters would be happy, advertisers would be happy. It’s all good.”
But it was not all good. Fruitcast tanked.
The partner they were working with at the time said he was hoping something magical would happen. “I don’t wait for magic,” Shah says. “I make the magic happen. And the way you make the magic happen is by making sure that what you’re doing makes sense to the market and people are willing to pay you for it.”
Pick a Big Market
Aside from having a great product and a great team, what does a startup need to do to be successful?
“Pick a big market,” Shah stresses. “That’s probably the biggest lesson I’ve learned in my life: Pick the biggest market you possibly can and go after it.”
Market size can refer to either customers or dollars. Enterprise might mean a low number of customers, but high dollars, while consumer markets might mean a high number of customers, but lower dollars.
“For example, even today, if you built an email service provider, you will make money if you stay in it long enough, you know what I’m saying?”
With new email service providers popping up seemingly every week, we had to ask why people keep starting them.
“’Cause it’s a big market,” he explains. “Everyone needs to send email. … You know why I’m in the document space? It’s a big market. Everybody on the planet that has a computer uses documents, man.”
But what about that old adage, “the riches are in the niches”?
“The riches could start in the niches,” Shah says, “but make sure you can go after a big market once you start in that niche.”
For example, if you’re in real estate, Shah says you could start with realtors in a specific area (a niche), but if you have bigger aspirations, you’ll want to make sure you’ll be able to expand to other markets later.
“Don’t pick a market that’s so small that by the time you get, like, half of it, you’re making, like, 2 million bucks a year,” Shah says with a laugh (though, for some, that might sound like an enviable achievement). “Sorry, that’s not going to get you anywhere. I’ll be the first one to tell you. So pick big markets.”
Beware the Churn
Over the last year or so, Shah has delved into online course creation, a new world for him. “I think it’s harder to sell than software,” he says. “And I want to learn how to sell something that’s hard to sell.”
One of the things that makes selling courses so difficult when using a subscription model is churn—when customers discontinue their subscriptions. “In the education market, there tends to be high churn,” Shah says. “That’s the bottom line.”
If, for example, you sell online courses via a monthly subscription, students will churn out over time, Shah estimates at an average of about six months. “When you survey people, of course they’re going to say, ‘Gimme a subscription! I want it all.’ … But the thing they don’t tell you is that they’re not going to use the courses.”
But if your heart’s still set on a subscription model, where you give access to all your courses at once, Shah has a few tips. One, still sell courses individually, so people can buy any course at any time. And two, charge a yearly fee instead of a monthly fee. That way, you have an upsell to offer those who were planning on buying only one or two courses. Why not get all the courses for the same price as buying a couple of them? Plus, they’ll gain access to new courses in the new year.
“That’s just psychology,” he says. “As long as you can deliver on the promise, that could work. But here’s the thing—you should expect churn on that first year, and relatively high churn.”
But dealing with churn is second only to delivering the best course possible.
“If you’re building a course, in my opinion, the number one problem you want to solve that aligns with your customer and your business is them actually achieving the outcome you are promising them when you sell them the course,” he says.
“So it’s essentially course completion that I would be maniacally focused on in that market. Because if you are not maniacally focused on that, then you will have a very low completion rate and you will have very low satisfaction.”
Never Stop Inventing
If past behavior is the best predictor of future behavior, then it’s no surprise Shah is juggling multiple new projects. When asked what he’s excited to be working on right now, he can’t pick just one (“I could get excited about any of the things, any of the businesses I’m involved in,” he says). But he’s most excited about FYI, his new document organizing tool.
“That one gets me the most excited, because it’s the newest one,” he says. “It’s one where we’ve spent a lot of time researching it and really nailing the product experience.”
Even since our conversation, Shah has launched yet another product, a desktop app for FYI. A self-professed “product person,” he just can’t seem to stop inventing, and he sets the bar high for others, but mostly for himself.
“I want to solve a problem in a new, innovative way that no one else has done before and that is better than anyone else.”
- Learn about Shah’s newest software products to hit the market
- The secret to building a profitable software product (it starts long before the first line of code is written)
- How to avoid building something nobody wants
- When to hire internally and when to outsource when building a SaaS product
- Where most product managers go wrong during development
- How to prevent your software tool from getting too bloated and overcomplicated
Full Transcript of Podcast with Hiten Shah
Nathan: All right, so first of all, thanks so much for taking the time to speak with me, Hiten. The first question I ask everyone that comes on is how did you get your job?
Hiten: I don’t have a job, I don’t have a career. Since I was five years old, my dad told me I should be an entrepreneur so here I am, I’ve started my own businesses. I have had one job in my life which was in college during the summer, I was an intern at a medical devices company that my dad knew the founders when they started in the garage and the company is called Masimo and they actually sell these things at the Apple store and it’s what you call a pulse oximeter.
What it does is it’s got this technology where you put this thing…this clip on your finger and it measures the oxygen level in your blood. And I was interning for the IT department there for, like, two or three months during the summer one year. That’s probably the closest thing to a job I’ve ever had. Since then and before that, never had a job in my life.
Nathan: Yeah, wow. So, tell me about your first company, because when we’re introduced by Neil, I know you guys are basically business partners but, yeah, tell us about your first company. Like, when did you all start?
Hiten: So Neil Patel and I are business partners on a bunch of different businesses and then we have other business partners on other businesses and we started with a consulting company when he was barely a senior in high school, so he was…it’s right around the time when he was in high school, a senior and getting out of high school into college and I had gotten out of college, I’m about four years older than him.
And my wife…my girlfriend at the time who is now…that’s hard to say, though, because she’s my wife now but anyways, my girlfriend at the time, Amy, is actually his sister and she said, “Oh, you know, he’s into this tech stuff. You don’t know anything about tech but, like, you know about business, so why don’t you, you know, hook up with him and, like, you know, help him out?”
And he had one customer paying him $3,500 a month for SEO and so we just decided to start a consulting company right when he was getting in college and I was getting out of college and, you know, as they say, the rest is history. We’ve built a bunch of software businesses together and we have other businesses that are not together and, yeah, we’re family.
So, that’s kind of the story and the first business was a consulting business doing internet marketing for other people.
Nathan: Yeah, I see. And what ended up happening, like, with that business?
Hiten: Yeah, we grew it but then the software businesses kind of consumed our time. So we started building a couple software businesses and they just started consuming our time so we decided to, like, sort of ramp down the consulting stuff.
Nathan: I see. And, man, you’re like quite prolific in, like, Silicon Valley. Like, I don’t know, is this true that you were one of the people that coin the term “growth hacking” because, yeah, I thought you’re more of a product guy, man. That’s what I’m really curious around as well.
Hiten: Yes, so since on the internet we started the consulting company doing internet marketing, I think the first thing I learned about the internet and all that was marketing and then, you know, today I think Neil would say he’s a marketer, I would definitely say I’m much more a product person and product-minded than marketing-minded at this point. And the growth stuff kind of happened in the middle where a friend of mine, Sean Ellis, and another friend of mine, Patrick Vlaskovits, we were at a bar in Orange County and we were talking about what was happening in marketing and we together kind of coined the term.
Sean Ellis is the, you know, kind of, I would say the owner, the father of the term for sure but even he will say that we came up with it together as we were at that bar and it was, you know, his evangelizing of it and his term so I wouldn’t take much credit for it besides being at that bar and helping, you know, think through the ideas that he had to come up with the term.
But I can definitely say I was there, I can definitely say, you know, I was part of that process. And, yeah, you know, again, another one of those “the rest is history.” Like, there’s been so many of those in my life, man. Like, it is what it is. It’s just being in the right place at the right time and having the right conversations, to be honest with you.
Nathan: They are amazing, man. So, you know, you started KISSmetrics, Crazy Egg with Neil. They’re, like, quite notable SaaS products. Was it any like…I know you’re an investor and advisor, was there any others that you’ve built that I haven’t named or that…
Hiten: We built a ton of stuff over the years. I mean there’s one we bought called Hello Bar, there’s one called KISSinsights that turned into Qualaroo. I mean, here’s the thing…
Nathan: Oh, wow. You buy Qualaroo too, yeah, there you go.
Hiten: Yeah, we built KISSinsights out from KISSmetrics and then we sold it to Sean Ellis and he renamed it to Qualaroo and we…you know, I would say this, there’s three major trends in internet marketing that we’ve definitely pushed forward and, you know, you could say that we pioneered, created, invented, whatever you want to call it.
One is we were one of the first to create a heat map and popularize it, we were the first to popularize it with Crazy Egg. We were the first to add people-based tracking to an analytics product with KISSmetrics. We were the first to pop up a single question survey system on a website. There were a lot of other, like, customer satisfaction, like, big, you know, take over your page, you know, center of the screen thing, ours is just ask a simple question to the visitor in a little pop-up on the bottom right, bottom left of the page.
And now, obviously, these three things that I talked about are everywhere, right? Our products in those categories. If you’re doing survey, there’s no way you don’t have a pop-up survey, right? If you’re doing analytics, there is no way you’re building an analytics tool without tying users and people to it, and if you’re building some kind of tool to help people understand the user experience on a website, there’s no way you don’t have a heat map.
Right? So, like, look, all those experiences make me a product person, is the way I would say it because I can easily take responsibility for, you know, whether we, you know, created that and made it. And I know Neil, in some cases, has been super helpful, like, with Crazy Egg, I would say that I’ve definitely have joint responsibility with Neil on creating the heat map and coming up with ideas and working with the team but with all the other ones, that was, like, very much like just the way I think about the world.
I want to solve a problem in a new, innovative way that no one else has done before and that is better than anyone else and it’s almost like my Achilles heel because for me, I don’t like entering markets where I have to go, like, chase people or compete and add all the features other companies have, it’s just not my natural mode. I have learned a lot about that and have gotten better and not being like that and, like, willing to add features that other people have and all that because I think it’s harmful to be very dogmatic about certain things or most things.
But, yeah, I would say that product person really focused on, like, how do we solve the problem better than anyone else?
Nathan: So what are you working on right now that you’re really excited about?
Hiten: I can get excited about any of the things, any of the businesses I’m involved in. I have many different businesses I’m involved in, we’re working on Crazy Egg right now, we don’t work on KISSmetrics at all, Neal or I. Then I have a new brand called Product Habits where I teach people how to create software and there’s an email list there and we’re sending emails every week, multiple ones to teach people how to do surveying, how to do user testing, how to do this stuff really in-depth, and we’ve just got done doing pricing research and through that process, we’ve been building a few of our own products.
One of them was launched last year. There’s a new one this year that is sort of like in the same market of the document space and what we learned is that the number one problem people have with documents is finding them. So, right now we’re building a tool, a product, it’ll be launched in the next month or so, and it’s called FYI and it helps you search and organize all your documents in one place across all the tools that you use.
Nathan: Yeah, wow.
Hiten: Or all of the apps that you use, we call them apps because it’s like Dropbox, Google Docs, Confluence, Slack, you know, you name it. Our goal is to connect to it and give you one place to find everything that you need to find. So that one gets me the most excited because it’s the newest one, it’s one where we’ve spent a lot of time researching it and really nailing the product experience, at least the initial one and people seem to agree.
There’s been many different folks who have been…in the last couple days because it just got released, like, privately and the people have been tweeting about it and saying, “Oh, it’s really helping me.” So, you know, I love that, I love to be able to create something that actually helps people and they say it unsolicited because that’s when you know you’re onto something.
Nathan: So, talk me through, like, how do you, like, let’s say…because, you sounds like, you know, you’ve built a lot of software, a lot of SaaS products. Talk me through, like, let’s say you’ve come up with an idea or you found a problem that needs to be solved or it’s something that excites you that you want to solve, how would you go about it?
Like, you know, your dev team, are you going to self-fund it, are you going to pitch it to VCs? Like what would you do, like, for example, this document finder SaaS product, like, how are you going about it? What taught you the process because I’m quite curious, like, where do you get your devs from, are you going overseas, are you going locally, are you using internal?
Hiten: Yeah, so, again, I don’t like being dogmatic about most things. I’ve learned that the hard way, like, the more stuck you are in your ways, the less likely you are to win and succeed, right? So, for us, like, a lot of times, we’ll start out very efficiently and luckily we’ve built software businesses so we know a lot about building software on our teams.
We work with people, we work with the fore [SP] on engineering because my co-founders and I, whether it’s Neil or my other co-founder, Marie, on these new businesses, neither of us are technical. I definitely fake it and you wouldn’t believe how easily I fake it but, like, I fake it. Like, I have to understand these things. This is my business, right? I created these things, I love product, if I don’t understand how these things work, then…
You know, even though I can’t write code, I need to understand, like, the nuances of everything. So, for me, it first starts with just an understanding of software and the technologies and, like, all the trade-offs and, you know, having a lot of empathy for the engineers and what they deal with every day. That’s honestly the start of it for me for any software. If you’re going to build software, start learning about engineering, like, just start learning what they deal with every day, what decisions they have to make, then you’ll understand how you can help them.
So, that’s a big one for me and I’m not dogmatic, like, I don’t think it’s about having a dev shop or doing things in the house or having one way to do it, usually we will build teams that are hybrid of outsourced software to one or two or three different development shops as well as in-house engineering management as well as some engineers in-house and then, you know, we split it up, right?
Like, in our FYI product, we need to connect with a ton of tools, we need to connect with a ton of software, a ton of apps, use their APIs. It is probably more efficient for us to do that through many different resources, not just internal people. Right? So for me, it’s the best way to get the job done as efficiently at the lowest cost possible and at the highest quality.
You know how they say you can’t be, like, low cost, high quality, and cheap? I say, “Fuck that,” excuse my language, you can be low cost, high quality, and what is it? Low cost, high quality, and fast, sorry, low cost, high quality, and fast. It is possible, you just have to know that’s what you want and then figure out who’s going to get you that. So, to me, it’s like right…you know, and you went into the dev side, right?
I do feel like that’s important but to me, what’s more important is nailing the problem that people have and there are many different ways to do it. If you’re good at sales, go sell it before you build it and realize exactly what you need to say to get someone to want to buy it and then go build it. If you’re good at, like, product and design and research like I am and like our teams are, go research it, go build prototypes, go do user testing, go figure out exactly what the problem is, present solutions, find the best solution for the problem.
If you’re good at marketing, go throw up landing pages and Facebook ads or social media traffic at the landing pages and test different variations of copy and value prop until you nail it and then go build it. So, this is the way I treat everything, which is like people have different skill sets but all of us regardless of what we know how to do or what our main skill set is, we can go discover problems and know that they’re the right problem to solve before we build too much or build anything at all.
That’s the secret. You want to know the secret, your audience want to know the secret? That’s it. The hard part, nobody wants to do that. Everybody wants to build something, everybody wants to make money, like, overnight, that’s not how this works. I’m sorry, that’s not how this works. And I know I’m preaching to the choir, you and I have talked before, you love research, you love speaking to your audience and all that kind of stuff, but that’s just one way, right?
You could do it with marketing, you can do it if you’re a salesperson. You don’t have to have this whole research mentality, you just have to know that you need to find the problem that people are willing to pay for and you have to make sure it’s the most important problem they have. As many would call it, you know, it’s a painkiller or not a vitamin. As many would call it, it’s the hair on fire problem, that’s what you’re looking for.
Nathan: Yeah, I love that painkiller versus vitamins, that’s a great way. And, like, how do you know when you’ve nailed it? You said, like, when you’ve nailed it, how do you know, is it like…so how would you call product/market fit, you’ve nailed it?
Hiten: You know, I’d say I’m experiencing a little bit of that right now at the FYI product where people just unsolicitedly want to tweet about it and talk about how great it is and how much it’s helping them. People want it since it’s not…The product/market fit is really word-of-mouth.
Nathan: I see. And one thing that always trips me out, man, is like you read how some people say, like, “You can do as much research as you want but sometimes customers just don’t know what they really need,” and they talk about with the car and Henry Ford and if the customer said they would have wanted faster carts, and what’s your take on that into the product and building product?
Hiten: You know, I think that quote is a misnomer and it’s like a misattributed quote. Look, here’s the thing, I don’t care what a customer tells me they want, I only care about deeply, deeply understanding their problem.
So if a customer tells me, “I want you to make it…” Let’s say, “I want you to add a,” I’m trying to think of a good example here. Okay, let’s say they say, you know, your document tool like your Google Docs, right? You have spreadsheets, you have Word documents, you have slides, you know, there’s many of these products out there.
There’s Notion, there’s Google Docs, there’s Notejoy, there’s Quip, there’s like an uncanny amount of the products in the market, right?
If the customer tells you, “I want to be able to paste a YouTube video into the document, right, and I just want it to show up,” what do you do? That’s the big question. Most people will be like, “Oh, they want to do that, enough of them want to do that, let’s go implement it.”
What they don’t bother to ask is why does the customer want to do that? Go ask the customer, “Why do you want to do that?” Customer goes, “Oh, because when I paste the link, it doesn’t show up as a link.” “Okay, when you paste the link it doesn’t show up as a link, but you want the YouTube video show up in there?Okay, got it.”
So you could solve the problem much easier because you don’t need to go embed the video in your document, you just need to make the link show up as a link so people can click it. So I would say that what the customer says is not as important as why they say it. That’s it. And that’s the faster horse and all that. You know what? Like, it’s not about that, it’s not like people say they want a faster horse but think about it, if people said, “I want a faster horse,” you say, “Well, why do you want a faster horse?” “I want to get from point A to point B faster.”
So then it’s the job of the inventor, the product person, and the business person to be like, “Oh, how can I get…what’s the best way I can create and/or invent to get people from point A to point B faster and how do I not get stuck in this construct of what they’re used to, which is a horse?” Because it’s not your job to get stuck in their construct, it’s your job to invent the new thing that they get excited about, that solves the problem better than the horse.
So, I hate that quote, I think it’s like the worst quote out there because it doesn’t really tell you anything. And Henry Ford, he invented…you know what he did? This whole quote stuff, like, what he invented is he invented the factory line, he invented efficiency that we still use today. People don’t think about that aspect of it, right?
That’s the aspect that matters, not the fact that the Model T was his, in my opinion. It’s the fact that he could make enough Model Ts that the horses became obsolete, that’s the key. That’s why I say it like that.
Nathan: Yeah, that makes sense. I love it, man. So, look, you know, Neil connected us because we’re getting big into the course space and I’m really excited because I think we can build something and found it truly disruptive in the education space for founders and, you know, I mean you got talking and, like, I wish we record this conversation so we’ve got to get you on the podcast, man. So, I was going to want to continue off with what we were talking about before I hit record so, you know, for us, the value props going to be like I think in the entrepreneurial and startup space, there’s a lot of rubbish out there and there’s a lot of gurus and I think people were really sick of it and I think there isn’t really a go-to place that really provides entrepreneurial education at really high standard where people actually get significant results.
And I know there’s many other online educational platforms out there but they’re not tailored specifically around entrepreneurship and startups and marketing, it’s more really just tailored around, you know, if somebody wants to learn, so it’s really for avid learners or really polymaths, you know?
So, I see there’s a real opportunity there to build a really quality, like, a well-renowned brand and also an educational platform where, you know…like what we’ve done with the podcast and the magazine convinced, you know, successful founders that have done things multiple times to come and teach as opposed to you going to learn from somebody…let’s say, it is, you know, around email marketing and their whole business is they just make money from selling email marketing courses.
I think there’s a problem there that really fascinates me and, you know, I mean you talked about how should we best approach this from, one, not just building a great product but also building a sustainable business model around this because, you know, the thing that concerns me the most personally is, as we discuss, was churn. Like, I know that a lot of these membership sites-style websites, churn is difficult because a lot of people join them and they leave and how do you get them to stick around.
We know that we need to build a course software or platform to house these courses but what is the, I guess, the pricing model, what is the business model? And, you know, I mean you’ve gone up and back and let’s just continue off where I said, like, I’ve so far polled our audience and they’ve said that…you know, because I don’t know if subscription is the answer and you said you don’t believe the subscription is the answer as a business model, it should be just the software’s job should be to ascend people onto that next course and you’ve done a really good job if that software can recognize and identify that next thing that that person needs to learn and how you can further serve them.
So, kind of going on from that, I said we surveyed our audience and they all said, you know, they’d love all of our courses in a yearly or monthly subscription, so, yeah, let’s just continue on from there, man, because I know you’re getting into the online education and stuff with your product base education around building…you know, like, helping product managers be better at what they do.
So, like, yeah, can we continue on from that, man?
Hiten: Of course. I mean, here’s my thought on it, in the education market, there tends to be a high churn. That’s the bottom line, and churn meaning if you charge a subscription fee, people will turn out at some period of time so, like, if you did it monthly, I would say your average is probably about six months by the time people churn out.
That’s just a fact, right? When you survey people, of course, they’re going to say, “Give me a subscription, I want it all.” Like, they’re going to say, “I want more,” and you’re going to say, “Yeah, we’re going to keep adding new stuff.” Right? So then they’re going to feel like it’s a bargain or a deal if they get a subscription versus having to buy each one individually.
It’s just basic psychology, right? But the thing they don’t tell you is that they’re not going to use the courses. They’re not going to be able to get through all of them, they don’t need to learn that much, to be honest with you. It’s just not how it works, right? Like, most of us are not built to learn.
Nathan: So how do I work out using, like, all of your experience and drawing from your experience, how would you approach solving this problem?
Hiten: If you really want to provide a subscription and you want to provide one where the value prop is “You’re going to get all of our stuff all the time,” right? My advice would be you do two things: one, you still charge an individual price and let people buy any course anytime, number two, you charge a yearly fee, not a monthly fee, if they want everything all at once.
And then what you get is you get people who might want to try and buy individually but then you get that upsell to get them for a little bit more money get a yearly subscription for all of them at once, so it’s almost like…you know, this is just an example but let’s say you charge $100 for a course. You know, your price points can be whatever, I’m just making it up.
And then they get to that upsell page or whatever and you’re like, “Look, for the price of two-and-a-half courses, you can get all 10 of our courses which is valued at $1,000 if you bought them individually but we’re just going to charge you $250.” Right? So they look at that like a deal, they look at it like a bargain, that’s why they want the subscription and you say, “It’s a yearly subscription and we’re going to add 10 new courses every year,” right?
So the second year, they’re going to feel like, “If you added 10 this year, I got 10 but then there’s going to be 20 next year, I just paid the same amount of money and I got double the value next year, so of course I’m going to pay 250.” Here’s the thing, though, that’s just psychology and the logic. As long as you can deliver on the promise, that could work, but here’s the thing, you should expect churn on that first year and a relatively high churn because if someone goes through a course and they go through one and they pay 250 and they don’t touch another one, they’re not going to probably churn, they’re probably not going to renew for the next year because they paid 250 and just did one course and there’s a high likelihood of that in the course business.
Nathan: So, do you think we need to build some sort of tool that bundles? Like, some sort of tool that impacts founders on a daily basis like a micro SaaS?
Hiten: You could, you could, you could. I wouldn’t say it’s a bad idea, right? The thing is, though, like, what are…you know, again, this is getting…since we’re on the podcast, you know, we’re recording this but, like, I’d get philosophical with you and be like, “What is you and your team good at and what can you get revenue on fastest and what are your skills?” Start with that, right, and make that work.
Build enough momentum with that and then figure out, like, what you might need to do next, right? If you say you’re good at software and you’re good at the course stuff, sure, yeah, built software and do the courses. For me, like, in my business with the course stuff, I’m not good at courses, like, I’ve never done them before until a year ago. I’ve been learning a lot about how to do them, I wanted to learn how to do them for so many reasons and I didn’t build software in that business even though I’m good at that, at least, like, based on track record.
I don’t think I’m good at it, I think I suck at it but, like, look, when I want to get good at something, I just jump in and I focus on it and I get good at it but if I want to make money and I’m impatient, then I’ll go do what I know how to do best. That’s my take on it, so it depends what your goals are. If your goal is to learn how to do software and get retention and build the software side of your business first because you have the patience and you want to learn that if you don’t know how to do that yet or haven’t had experience, then do that.
But if you want to make money and you already know how to do the courses, why not just, like, build that and be the best at that in the beginning and then go figure out where you need to expand it to solve the retention problem or the churn problem or what have you.
Nathan: Yeah, I like the way you think about that.
Hiten: And there’s caveat. If you told me I can go hire a person that’s really good at software and done it before and I have the capital to do that, then my framework would be, “Okay, go do that,” right? And then do the other thing too and do five things at once, go for it, right? If you could hire enough people and your goal is…and you can hire people that know how to do it, there’s a tremendous amount of value in that too but if you’re really doing it and focusing and, like, want to build revenue and then invest in the business, build revenue with the fastest thing that builds your revenue which tends…which in every case I’ve seen tends to be what you already know how to do.
Nathan: And you mentioned something, like, how come you’re really fascinated by education courses?
Hiten: Because I think it’s harder to sell than software and I want to learn how to sell something that’s hard to sell, I want to learn what the triggers are, what the…I want to learn about copy, I want to learn about storytelling, I want to learn about these things that if I were just doing software, it is much harder to learn. Right? For me, it’s learning. I love to learn but I’m very choosy and picky about what I want to learn myself and put all my time into or as much time as possible.
In the last year, I’ve put all my time into writing emails on an email list, you know, and convincing people to buy a course teaching people how to do it for free on the email list, right? So that they are into the brand, they have learned from the brand and then we are building the desire for them to want more and then selling them a course about the same topic, right, and then learning how to build the audience, develop the exact persona and the exact course material.
These are things I wanted to learn about, that’s why I did it.
Nathan: That makes sense but now you’re switching focus from the sounds of it?
Hiten: Oh, we have multiple teams and multiple people, so we do a lot of the product management work and we do a lot of the, you know, coursework and all that, my co-founder and I. And then we have a small team of engineers, designer, and, you know, front-end, like, engineering CSS HTML, you know, like some Python, Ruby on Rails, and some back-end stuff and we just have a team and it’s about…the total including the two of us, there’s about nine people on the team and we build…we take care of two or three different products and that’s about it.
Like, we had our whole course back-end built within about 30 days and…maybe a little bit less, maybe about three weeks from an engineer and a designer that we work with and we built all of this also ourselves including the billing and all that stuff. But they’re specifically good at speed and building that kind of stuff out really fast, it’s not got any, like, crazy bells and whistles but it sold the course and the course, you know, sold off of that system and nothing went wrong, it was fully baked and it was good enough, you know, but it wasn’t the same as building a SaaS software that needs retention because that requires, you know, many months of effort usually to nail the certain aspects of that that you need to.
So for me, like, again, I’ll put my best muscle at the biggest problem we’re going to hit every time and usually it’s software, and so even with the course stuff, we ended up building our own back end because everything out there, like, we couldn’t do it the way we wanted to and charge the way we wanted to and things like that but we also have engineers that can do that. So, yeah, I would say that the teams are small but we run multiple products at once.
That’s just something that my co-founder and I just have committed to and enjoy, and we learned the most that way.
Nathan: That’s really impressive, like, you can build stuff, like, in that short amount of time. And, you know, if somebody’s wanting to build…like let’s say somebody doesn’t have a background in software that want to build a tool or want to build SaaS products and they have an audience and, you know, they’ve got the capital enough to self-fund, maybe let’s say a few hundred grand, they can self-fund.
Would you recommend to look to outsource that and find a good agency and a good dev shop or would you recommend to hire someone internally?
Hiten: It’s depends. I tend to, again, like, just focus on what’s the right angle for that job or that thing that I’m looking to get done and, you know, the angle could be that like if I have some folks who can do the engineering management or are very good individual contributor type engineers, then I might do it in-house, right?
But a lot of the time, like, it’s easier to bid out some software especially if I have the design work and a lot of the effort around, like, the specifics have been done and then go to a bunch of different dev shops or even the contractors and see what they would charge for it.
Nathan: Yeah, okay, that’s all good. So, let’s switch gears onto back to the product management piece, so, you know, one thing I think I’ve got to drill you more on is product design, product management. So, what’s the common mistake, because I know you do a lot of advisory, like, what’s the common thing that you find when people are trying to build, like, great products?
Hiten: You know, they don’t build something people would want.
Nathan: Just that simple?
Hiten: That’s it, that’s it. Yeah, it’s like what I was saying before, go figure out what people want, literally, like, actually what they want. I don’t mean like the specific like, you know, “Oh, you know, they want faster horses,” I mean like what’s their problem? They want to get from point A to point B faster than the horse can take them, right? That’s what I mean by what they want. What’s their core problem? Why do they have that problem, right?
They have that problem because the horses can’t go fast enough so the horses ain’t going to work, right? You can’t make a horse go faster, than the, you know, at a maximum speed of a horse. So, like, yeah, I’d say people just don’t realize that what they built, nobody cares for it. They don’t spend the time to go figure out why people don’t care, they don’t spend the time to go figure out “Is this product really solving a problem?”
They don’t go spend the time to go find the problem before they build the product. That’s it. The most common mistake I see everywhere is that at the core, they haven’t built something people want.
Nathan: And when it comes to, like, finding that out, like, how many people do you recommend to speak to? Do you have a rule of thumb or none?
Hiten: I have no rule of thumb on that. I think if you’re a salesperson, if you do, like, 10 to 20 different sales calls in the exact persona that you’re targeting, in the category that you’re targeting, you will get really good data. If you are in marketing, then you probably need to get hundreds of visitors to a few landing pages to see which one resonates the most, right, maybe thousands, but you can do that if you’re a marketer.
If you’re doing product development, then what you’re really doing…and you’re into product, which are really…what you’re really doing is, like, you’re basically learning through mock-ups and prototypes exactly what resonates with people and what doesn’t because if you’re product-oriented, you’re generally going to create flows and experiences and test those experiences before they’re ready.
And that might be, like, you know, 20, 30 user tests, right, one by one, or it might be 50 customer interviews to find the problem if you don’t have mock-ups, right? So it’s really just like thinking through what’s the best way for me and how am I going to solve this problem of really understanding what problem people have in this space that’s causing them the most frustration, that’s the number one problem.
I can’t stress that enough, if you don’t solve the number one problem your customers have, just get out of business, don’t do it, don’t worry about it. It’s not worth it.
Nathan: And when it comes to like…another question I’m curious around because, like, we’re just starting to get into, like, we’re going to build our own software, our course software, right, to house the courses and do all these crazy shit. I can already see already there’s going to be just so much, like, feature creep, scope creep.
Like, what’s your recommendation on keeping all that stuff contained and simple and, like…yeah.
Hiten: What do you mean by that? What’s your challenge?
– Well, we’re already looking at, like, “Okay, we can add this, we can add that, we can add this, we can add that,” and, like, now we just got to strip it back, like, just keep it as simple as possible. Well, then, I know when we launch it, there’s going to be, you know, all these requests and there’s going to be, you know, all these different things, like, how do you know, like, when you’re building out your product roadmap, how do you know what to add, what to keep, what to remove?
Yeah, I just think…because it’s really fun and exciting too, you know.
Hiten: Yup, totally.
Nathan: So, I guess, like, how do you ensure that you add the right things or, like, you know, you don’t have scope creep or like just too many things and your tool can eventually become bloated? I’m not going to, like, name names but there’s plenty of SaaS companies out there that they just add too much stuff and they’re just too bloated, too complicated and I think that’s an easy trap to fall into, that’s what I’ve seen just already when we just start to spec this thing out.
What’s your advice? What’s your recommendation? How do you approach to make sure that, like, the tool doesn’t get overcomplicated or too bloated, and how do you know which features to add and which features to keep to develop that product roadmap?
Hiten: Yeah, yeah, yeah, it’s great, such a complicated thing, to be honest, and everyone, like, has challenges around it, you know? And it’s really, really a smart question.
Product development is two things in my mind, number one, is constantly learning more about your audience and your customer base than anybody else possibly can know about them. A lot of people would say you want to know what they eat for breakfast even if you’re not selling them food.
That’s the concept and that part is not creative. It’s not creative at all, it’s actually very basic and people have a hard time doing it. For example, if you’re on a customer call and your goal is to just learn from them, what percentage of that call is you talking versus the customer talking or the prospect or, you know, just the interviewee?
That tells me everything I need to know about how good you are at learning from customers. You should be talking 5% to 10%of the time at most. Hardest thing to do, my friend, hardest thing to do. So, that’s one, the second piece of it is about creativity. You want to put your creativity on the hardest problem only, the right problems, the hardest problems, because that’s where you deserve to put your creativity, that’s what deserves your creativity.
What I see people doing is like they’ll create what I call, like, a feature shit list, that means that they have these million features they want to build but they have no basis for how those features solve the hardest problem that they discovered their users or their customers have. And I know I’m like a broken record talking about the problem, it is all about the problem, it is all about figuring out what’s the most important problem people have and then maniacally throwing your creativity at it but you cannot do that if you’re throwing your creativity at everything.
You cannot do that if you think your customer has 100 problems that you have to solve for them. You can only do that if you believe your customer has one problem that you will find, that you need to find that you can throw all your creativity at and that will lead to the prioritization you’re looking for. So if you’re building a course, in my opinion, the number one problem you want to solve that aligns with your customer and your business is them actually achieving the outcome you are promising them when you sell them the course, so it’s essentially course completion that I would be maniacally focused on in that market because if you are not maniacally focused on that, then you will have a very low completion rate and you will have very low satisfaction.
Nathan: Yeah, that’s kind of, you know, where we’re thinking, like, the goals got to be but, yeah, it’s so tricky, man, it’s so tough. Like, can you tell us about a time or some products you’ve worked on that have failed and perhaps why and please don’t tell me it’s because you were not obsessed enough about the problem.
Hiten: I have failed when I got a fundamental thing about the customer wrong that I built the whole product around. We built one of the first podcast advertising networks, I don’t even know when, probably back in 2006 and it was called Fruitcast and if you type in “Fruitcast TechCrunch,” you’ll read Michael Arrington’s post about it.
Well, guess what? We were charging a $250 CPM to the advertisers. Guess what? That’s more than radio ads.
Nathan: But that might not have been a bad thing.
Hiten: No, we fucked up, we didn’t know that. That’s bad and that’s horrible. There’s no ROI that anyone knew they could get from podcast ads and yet we were charging higher than radio ads. No, it was dumb, it doesn’t make sense and this was in 2006, man. This is not when, like, I was podcasting. This is not when you were podcasting.
This is 11, what, 12 years ago now.
Nathan: Yeah, wow.
Hiten: Think about it, like, podcasting was nothing, it didn’t exist. Now it exists, thanks Apple, right? Apple made it exist, by the way, but it’s ridiculous, like, we had no idea, we were done, we didn’t go talk to advertisers, we just assumed we’re going to charge something and podcasters would be happy, advertising would be happy, it’s all good.
It is not all good, it is not all good, that thing failed. Forty-five grand or 100 grand later, I don’t remember because we spent about a year on it and we shut it down and the partner we had, when he was working on it he said, “I was hoping something magical would happen.” So guess what? I don’t wait for magic, I make the magic happen and the way you make the magic happen is by making sure that what you’re doing makes sense to the market and people are willing to pay you for it.
Nathan: Why don’t you just change the price? Like, it just wasn’t…it sounds like there wasn’t really a market. [crosstalk]
Hiten: It wasn’t gonna work, there wasn’t a market. There was other problems but that was the biggest problem.
Nathan: There you go. And, you know, I guess because you’ve been around in this space for so long in startups and stuff, I’m curious, like, out of all these startups that you’ve been involved in, you know, what tends to be the underlying factors that make them successful besides having a great product and besides having a great team?
Hiten: Market, pick a big market, that’s probably the biggest lesson I’ve learned in my life. Pick the biggest market you possibly can and go after it, don’t be scared. Don’t pick small markets, small markets are not worth anyone’s time. Pick a big market, one that is the total addressable market size whether it’s in terms of dollars if you’re focused on enterprise, low number of customers, high dollars, or if you’re focused on consumers, it’s a high number of consumers, or you’re focused on companies, it’s a high number of companies you can service, you know?
Something has to be high or it’s not a big total addressable market, so pick big markets. For example, even today if you built an email service provider, you will make money if you stay in it long enough, you know what I’m saying?
Nathan: Yeah, a lot of people keep doing that, man.
Hiten: Because it’s a big market, my friend. Everyone needs to send email, it is a big, big, big, big market. You know why I’m in the document space?
Nathan: Big market.
Hiten: It’s a big market. Everybody on the planet that has a computer uses documents, man. It is probably the first market when it came to personal computers, if you think about it. So the biggest lesson I learned from my co-founder, Marie, is that you have to focus on the big market. She used to work in the alcohol industry at the biggest company out there called Diageo, so it was like spirits and wine and beer and all that stuff and she was in innovation there, had five different jobs there.
Before that, she was at PricewaterhouseCooper where she was doing all kinds of…or Coopers, whatever, she was doing all kinds of different business analysis and, like, restructurings and all these kinds of things and the lesson there is, like, “big market or bust” because in a big market, you will make money. In a big market, like, there are problems to solve that are much easier to find than in a small market, believe it or not, because there’s just so many people you can talk to and they’ll talk to you.
Nathan: So your thoughts around when people say, “The riches are in the niches,”what’s your comment on that?
Hiten: The riches could start in the niches but make sure you can go after a big market once you start in that niche. So I’m not against anything anybody says about starting small, don’t get me wrong, you want to make sure the market size is big enough no matter what, though.
So, like, if you started in real estate, right, and you want to start with realtors in a specific area, some would call that a niche, right?
Yeah, it is, but, like, if your aspirations are larger, you want to know that you can go do that for every single territory on the planet, right? You got to start somewhere, so this is not an argument against starting somewhere. What it is is don’t pick a market that’s so small that by the time, you know, you get like half of it, you’re making like $2 million a year.
Right? Sorry, like, that’s not going to get you anywhere. I’ll be the first one to tell you so pick big markets, that’s it. Pick big and that’ll help you find big problems.
Nathan: And coming from Silicon Valley, what are your thoughts on raising capital versus bootstrapping?
Hiten: I have no thoughts on that that would lean me either way. What the bottom line is, like, if you can raise money, raise money. If you’ve never raised money before, make sure you know what you’re getting into. What you’re getting into is a rat race and it’s not a bad one, it just means you’re raising money every 12 months and you have to set your business up for that and it is all about milestones and growth, whether it’s user growth, revenue growth, market growth, market share, whatever it is that’s important, know what that is, set your milestones up and go, you know?
Like, that’s the mistake people make, they raise money and think everything’s all good. No, no, no, you raise money, you’re in a rat race, you have something to accomplish, you have investors who want an outcome, right? Treat your business with that sort of rigor. If you’re self-funded, great.
Like, go build cash, build a profitable business, you know, first and foremost, right? And by the way, even the venture-funded business needs to be profitable at some point, right? You get to spend way ahead of your revenue which are venture-backed and there’s a advantage to that but there’s also a downside because you’re on this sort of rat race, you’re in the rat race, you’re looking to make sure you raise a new round every 12 months until you go public or bust or someone buys it.
Nathan: Yeah, I love it, man. Awesome. Well, look, we’ll work towards wrapping up, Hiten. So, I know you got a lot of projects going on, where is the best place that people can find out more about yourself and your work?
Hiten: Sign up for my newsletter, it’s at producthabits.com. It doesn’t matter whether you’re a product person, a marketer, a founder, or even working as an admin somewhere, if you have the aspirations to grow and learn about products and business, just sign up for the newsletter. I send a weekly email that’s all kinds of links about tech and software in business that you’ll find valuable.
Nathan: Awesome. Well, look, thank you so much for your time, Hiten. It was an absolute pleasure speaking with you again and, yeah, man, I really appreciate your time.
Hiten: Thank you, Nathan. I was happy to be here and I love your questions and I hope the audience gets value from this.
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