How Nathan Barry grew ConvertKit from zero to $125,000+ in monthly recurring revenue (Part 2)

Vinay’s note – Treating ConvertKit as a side project just wasn’t working out for Nathan as revenue steadily declined. In this post (read part 1 of this two part series here) we learn how Nathan managed to turn ConvertKit around and go from $1207/month to $125,000/month in only 15 months?

In October 2014, ConvertKit monthly recurring revenue dropped down to $1207, and Nathan realized that if he wanted to turn his failing company around, he had to give it his full attention.

So he started working on his SaaS business full-time, invested $50,000 of his own money into it, hired a great team…and 15 months later, in January 2016, ConvertKit crossed the $125,000 in monthly recurring revenue mark. 

email marketing for professional bloggers

The decision that changed everything

In April 2014, Nathan’s friend Hiten Shah told him to either focus on ConvertKit full time or shut it down and move on to something else. Initially, Nathan ignored his advice…but in October 2014, when ConvertKit revenue dropped to $1207/month, he realized that Hiten was right. It was time to make a decision.

Nathan thought long and hard about it. On 1 hand, ConvertKit was struggling, while his other products were doing well. On the other hand, ConvertKit was a a powerful tool that solved a real problem and had huge potential. Eventually, it all boiled down to these 2 questions, which he recommends to every entrepreneur who finds themselves facing a similar dilemma:

#1: Do I still want it as much as I did when I started? “Often, we get excited about a new project, and we’re like, “Oh, it would be so cool to run this email marketing company,” and then a year into it, we run out of steam and say, “Okay, this is way harder and way more complicated than I thought, maybe I should just quit.” That’s why it makes sense to ask yourself if you still want it as much as you did on day 1. No? Then just shut it down and walk away.”

#2: Have I truly given this company my best effort up until now? “If you still want it really badly, then the next question is, have you truly done everything you can to make your company a success? Be honest.”

decision infographic

Nathan realized that yes, he still wanted it as much as he did on day 1, and no, he hadn’t given ConvertKit his best effort. He’d been working on it part time, he’d been running a bunch of side projects, he hadn’t done the hard work of direct sales…so he decided to get serious.

“When I realized I haven’t given ConvertKit the best possible chance to succeed, I started working on it full-time. I invested $50,000 of my own money into it, and hired a real, full-time team.”

And it paid off. Next month, the revenue went up to $2100/month, then to $3,237/month, then to $3,885/month…and it’s been growing ever since.

Lessons:

  • Your heart is not in it anymore? That’s okay. Quit. You need to let go of this fantasy of building a SaaS company and making a lot of money without too much effort. It will take a lot of time, energy and money to get things going and to keep them going. Are you willing to forego other opportunities and pour all those resources into your startup? It’s okay if you aren’t. Shut down or sell your company, and move on to other things.
  • Ask yourself “Have I given my company every possible chance to succeed?” This question is valuable even when you have no intentions of quitting. It’s human nature to take the path of least resistance, so often we cut corners without even realizing it (by avoiding direct sales, hiring cheap labor, etc.), and then wonder why things aren’t working out. Take an honest look at what you have done so far and ask yourself, “Have I truly given this company my best effort?” This will help you see in what ways you’ve been slacking off.
  • Get serious. Working on your company part-time makes sense when you are still testing waters, but if you have already validated your idea, and now you want to turn it into a legitimate business, then it’s probably not going to cut it. Go full-time, put your head down and do the work.

The power of direct sales

Nathan started focusing on direct sales in October 2014. Previously, he would just write blog posts and hope that customers would come. Not anymore. Now he made a list of blogs that used Aweber, Mailchimp, or InfusionSoft, then did his research on the bloggers and reached out to them via email.

Here’s the email template that he used:

email 3

Then, once the blogger replied with their complaints about their email service, he’d say, Cool, makes sense, these are the same frustrations that I had,” then get them on Skype and show them ConvertKit. “I tried to keep it super informal and low-key. It’s not structured, it’s not salesy, it’s not a pitch. It’s less of a presentation and more of a conversation. We would just talk.” And how would he close the sale? “I’d simply say “Hey, it sounds like a good fit, would you like to sign up?” That’s all.”

At that point, people would often have an objection. They’d say, “Man, I’d love to, this sounds really good, but switching email providers sounds like a HUGE amount of work… Everything sounds great, but I just don’t want to do the work to switch.” After realizing that this objection was coming up over and over again, Nathan decided to make switching to ConvertKit as easy as possible.

“One of the big changes we’ve made that had a huge impact was offering a concierge migration service where we’ll do the entire migration for them. So we tell people, “You know, switching is not that hard, in fact, we can do it for you,” have them give us access to their WordPress blog and to their Aweber/MailChimp/InfusionSoft account, tell us where the opt-in forms are, and so on. Then we transfer all of their subscribers to ConvertKit, copy all of their autoresponders, switch out all their opt-in forms to match the original look and feel, etc. And we do it all for free.”

And what would he say to people who were interested, but didn’t trust a small, unknown company?

“We’d just talk this through. I’d explain what kind of infrastructure we have, what we do for deliverability, etc. Plus, I use ConvertKit on my own blog, and at the time I had 30,000 – 35,000 subscribers, which meant that often my blog was bigger than theirs. That, combined with my reputation in the blogging world, gave me extra credibility in their eyes. All this was way harder in the beginning, though. Now I just say, “Hey, some of the biggest blogs on the Internet use ConvertKit, and they have 300,000 – 500,000 subscribers, so I think we can handle your 10,000 subscribers list.”

How did Nathan convince those big customers (Pat Flynn from Smart Passive Income, Leo Babauta from Zen Habits, etc.) to switch to ConvertKit? He did rely a lot on his personal network (in fact, due to his connections in the blogopshere, only one third of all his outreach emails were cold emails), but he would also get on a plane and fly out to meet potential customers face-to-face.

“Over a period of about a month, I flew to San Francisco, New York, and San Diego just to meet with potential customers. I had coffee, lunch or dinner with a bunch of people. I found that in-person meetings made a big difference.”

Nathan says that it was this focus on direct sales that turned ConvertKit around. “Once we had direct sales, we gained traction and could move to bigger and bigger accounts. Then those big clients (people like Pat Flynn, etc.) started referring tons of new customers. That would have never happened if we hadn’t invested very heavily in direct sales. I 100% recommend direct sales to other SaaS entrepreneurs.”

I 100% recommend direct sales to other SaaS entrepreneurs Click To Tweet

Lessons:

  • Put more effort into direct sales. “I think entrepreneurs in the bootstrapped software space are often scared of direct sales, but really, there’s no reason to be. Look, if your product solves an actual, painful problem, then just get on the phone and talk to people. There’s no need for hard-selling, or anything like that… Just talk to potential customers” Also, pay attention to how Nathan started his emails by asking people what frustrates them about his competitors, which not only got the conversation started, but also allowed him to improve his product and refine his marketing. Consider using a similar approach.  
  • Find out what the most common objections are, and figure out ways to overcome them. Most people immediately have their guard up when they realize you are trying to sell something to them. That’s to be expected. Pay attention to what the most common objections are, and then do everything you can to solve those problems. Make signing up for your product a no-brainer.
  • Get well-known clients, use them as social proof. Of course, this is easier said than done, but the sooner you can land some big clients who are recognized in your industry, the better. It will be much easier to win over customers when people they compete with or look up to are already using your product. And don’t be afraid to go the extra mile for those big clients. They’re that important.

Email marketing for professional bloggers

In October 2014, Nathan also realized that there was a flaw in his marketing.

Who was ConvertKit for? That was a question that I never had a really good answer for. The answer was something like, “anyone trying to build an audience quickly and sell products online.” That wasn’t good. Here’s a hint: if your market definition has the word “anyone” in it, you’ll probably fail.”

After analyzing ConvertKit’s user base, he noticed that many of his most successful customers were selling books, so he decided to focus on them.

However, it soon became clear that “Email marketing for authors” wasn’t working. “ Our customers that most strongly identified with the term “author” tended to be some of the smallest accounts, needed the most help, and were the most likely to cancel.” Just like with ConvertKit Academy, he was focusing on the wrong people and possibly alienating his best customers.

And who were those best customers? “Our best customers didn’t start building an email list from scratch, instead they switched their list over from another provider. These people usually didn’t strongly identify themselves as authors. Instead they were bloggers, course creators or something else.” So he decided to rebrand ConvertKit as “Email marketing for professional bloggers.”

Now, Nathan knew exactly who he was selling to, and the people he was after were both serious about email marketing and willing to pay for it.

Here’s a hint: if your market definition has the word “anyone” in it, you’ll probably fail Click To Tweet

Lessons:

  • Trying to appeal to everyone means appealing to no one. People often think that targeting pretty much everyone will lead to more customers. That’s a big mistake. When your target market is too wide, it’s hard to make a compelling case as to why anyone should use your product, and consequently, no one is really excited about it. Remember, customers don’t want products that are made for everyone, they want products that are made for them.
  • Target a specific niche within your industry. Who exactly are you serving? The more specific you get, the easier it will be for you to both build an excellent product and to sell that product. “You know, everyone talks about product-market fit, but I just didn’t realize how important it was to target a specific niche within your industry. Once we did find our product-market fit, it made a HUGE difference. You can actually see it on our revenue graph.” Do your best to figure this stuff out sooner rather than later.
  • Who are your ideal customers? As you can see from Nathan’s story, it’s easy to get confused and go after a particular market segment, then soon realize that those people don’t make for great customers. That’s why it’s important to think long and hard about who your ideal customers are. Who has money, is willing to spend it and would benefit greatly from using your product?

 $50,000 investment

December 2014 was the month when Nathan realized that working with freelancers wasn’t going to cut it anymore. His direct sales efforts were starting to pay off, ConvertKit was growing, and more customers meant more feature requests. Plus, he started noticing a lot of flaws in his product, and all those little frustrating things weren’t acceptable anymore. “I knew that in order to make ConvertKit truly great I’d need a full-time team.”

But hiring people full-time costs a lot of money. “In order to support growth over the past couple of months, I’d been funneling a bit of money from from my books and courses into ConvertKit to make up for our increased expenses. But now that I wanted to bring on a full-time developer, I needed to make that official with a larger investment.” So on January 1st, 2015, Nathan invested $50,000 of his own money into ConvertKit.

That wasn’t an easy decision to make. “Making that investment was hard. We had just purchased and renovated a house, so it’s not like we had a lot of extra cash at the time… In fact, that 50k was the last bit of my money, there was no more money after that. So it was a big deal to invest it into ConvertKit.”

Where did that money go? At the time, Nathan was working full-time himself, and had 1 part-time developer and 1  full-time customer support person. His investment allowed him to hire his friend David Wheeler full-time as a lead developer. “The important thing was having a dedicated, in-house development team, rather than an outsourced one. That allowed us to build things faster and think much more long-term.”

In fact, that 50k was the last bit of my money, there was no more money after that Click To Tweet

Lessons:

  • You’ll probably need a full-time team. “I think you need people who are fully focused on growing your company, rather than just giving you a few hours a day.” And how can you expect someone to be committed to your business if you yourself are not committed enough to hire them full-time?
  • Salaries add up quickly. “You always think about offices as expensive, but an office is dirt cheap compared to people.” Building a full-time team costs a lot of money. Make sure to keep that in mind and prepare for it, so that you’d be ready once the time to hire comes.
  • Avoid cheap labor. You might be wondering why Nathan didn’t outsource everything to a developing country. It would have been much cheaper, right? “I don’t mind hiring people all around the world. We have people in Spain, we have people in in Brazil, then here in the US, we have people in 7 different states.. But I’m just not interested in hiring really cheap labor. I want to find people who are very good at what they do and want to be a part of our team.” It might be tempting to just hire the cheapest people you can find, but in the long run, it’s much better to hire the best people you can afford.

The year of explosive growth

In 2015, ConvertKit’s MRR grew by a staggering 2522%. What happened that year?

Here’s Nathan’s own account up to the middle of October:

  • January — Direct sales start to pay off as we land larger accounts. MRR reaches $3,885. I start to realize that authors are not a good market.
  • February — More direct sales, more growth.
  • March — After a lot of sales conversations, ditch every mention of authors from the site and focus on “Email marketing for professional bloggers.” I start cashing out of some investments to have money for my personal expenses.
  • April — Leo Babauta from Zen Habits switches to ConvertKit, which is a major credibility boost in sales conversations.
  • May — Growth is strong, but we aren’t growing fast enough that our revenue ($8,500) matches our expenses ($13,000/month) before we run out of the $50,000 I invested. I look into funding options, but ultimately decide to temporarily lay off team members to avoid running out of money.
  • June — Start trying webinars (with some success). Reach $10,000 in MRR. Release tags which rounds out our marketing automation offering.
  • July — Land some big new clients (including Pat Flynn) and hit a massive 48% revenue increase. We bring everyone back to full-time.
  • August — 25% growth brings MRR to $18,296.
  • September — 32% growth brings us to $24,699. 2 days later we break $25,000/month.
  • October — Just halfway through October, we break $30,000/month showing 40% growth. Not including another 100 customers and $13,000 from a single webinar (that we counted as one-time income).

And that was when things really picked up. It took Nathan an entire year to get to October’s MRR of $41,632…and then he more than doubled in the next 2 months, ending 2015 with $98,000 in MRR (the graph doesn’t include the last few days of December).

revenue graph 2

Lessons:

  • Do the work. What’s interesting about ConvertKit’s year of explosive growth is that it was rather uneventful. Nathan’s entire timeline can be more or less be summarized with “More direct sales, more growth.Yet it’s important to understand that behind it is an entire year of hard work. Want to take your business to the next level? Show up and do the work, day in and day out. It will pay off eventually.
  • Growth will accelerate as you gain momentum. Startup growth is rarely linear. The hockey-stick growth curve that you can see in the ConvertKit’s revenue graph is actually quite common. It’s really, really hard to get your startup off the ground, but once you gain enough momentum, growing it becomes much easier. So keep pushing forward.

How much does it cost to grow a startup?

You’d think that with ConvertKit doing so well Nathan is now rolling in the dough, right? Yeah, about that…

“I think everyone underestimates how much it costs to run a real company. Payroll, servers, etc. It all adds up”

In December 2015, ConvertKit net revenue was $100k. But what about the expenses?

Take a look at the approximate budget for that month:

 

budget pie chart

 

As you can see, out of $100,000 in net revenue, only around $3,000 was profit, and all of it was immediately reinvested back into the company.

It turns out that the reality of running a startup, even one with a high MRR, is much less glamorous than one might imagine.

I think everyone underestimates how much it costs to run a real company Click To Tweet

Lessons:

  • Most people severely underestimate how much money it costs to start, run and grow a business. ConvertKit was in the red for much of it’s existence, only breaking profit in August 2015, and even now once all the bills are paid, there isn’t much left. “It all costs a lot more money than you think, especially if you are growing quickly.”
  • Get your own finances in order before you launch your startup. It’s easy to look at Nathan and think, “Well, good for him, but I can’t afford to go work on my startup full-time or throw 50k at it. That would be missing the big picture, though. The only reason he had been able to start working on ConvertKit full-time and invest his own money into it was because he has built his savings and created multiple streams of income prior to launching ConvertKit. So if you have entrepreneurial ambitions, it might make sense to pay off debt, build savings and create several streams of income before you launch your startup. That way you’ll have the freedom and the resources to truly give it your best effort.  
  • Being a founder means making sacrifices. Even though Nathan was in a better situation than most when he launched ConvertKit, growing a startup still took a heavy toll on his finances, especially since he started working on it full-time. “Hilary and I trimmed our personal expenses to the minimum, I ended the lease on my office and moved my computers and camera gear back home, and we cut back the extra money we were paying on our mortgage each month. We decided that focusing this way would make 2015 a lean year for our personal finances, but it would be worth it in order to build ConvertKit into a sustainable company.” This is something that all founders should be prepared to do when they are bootstrapping a startup. “I think most people make life way too expensive, and if they want to run a company, they need to make it a lot cheaper.”

Nathan’s top 3 tips for SaaS entrepeneurs

Now, in January 2016, ConvertKit employs 13 full-time people, sends out over 30,000,000 emails each month, and at the moment of publishing, has reached $133,000 in MRR.

But as you already know, this wasn’t an easy journey, and there were many mistakes made and lessons learned along the way. So what is Nathan’s advice for those of you who are set on building your own SaaS businesses?

#1: It’s going to be way harder and take way longer than you think. “Most people quit way too early. They start a company, they get it going, and after a year they see that they aren’t making much progress, so they say “Maybe I should just shut it down.” You want to build a SaaS company? Then give it 3 years minimum. And if that seems like too big of a commitment, then don’t even start, because in that case you clearly don’t want it badly enough.”

#2: Focus on direct sales. “Do your research. Craft a personal email. Send it. Repeat. Reach out to 25-50 people a day, every day. That’s how everything is going to happen. Remember, if you can’t get sales, nothing else matters, if you don’t have sales, you don’t have a business.”

#3: Don’t build to sell. “Stop thinking about the exit. Build your company as if you are not going to sell it. A business that is sustainable, one that doesn’t need funding to survive, is going to be valuable. So build it like you are in it for the long haul, and if at some point you want to sell it, then that’s your prerogative, you totally can.”

Conclusion

We always hear stories about startups that turned into multi-million dollar businesses overnight, but it’s important to understand that these cases are exceptions and shouldn’t shape our expectations.

The reality is that building a sustainable business that generates a decent amount of revenue will probably take years of commitment, hard work and sacrifice. 

So the question is…are you willing to pay that price?

About

Agota Bialobzeskyte is a content strategist that helps entrepreneurs grow their business with value-packed content that readers love.

  • Excellent write up Agota! Great insights into what it takes to get a SaaS off the ground and also how thin margins are even at $100k/m

    • Agota Bialobzeskyte

      Thank you, I’m glad you liked it!

  • Great article. Refreshing to read an honest account of what it takes to run a successful business. Thank you Agota and looking forward to following your future successes Nathan.

    • Agota Bialobzeskyte

      Glad you liked the article!

  • Read both parts. Great job Agota!

    • Agota Bialobzeskyte

      Thank you!

  • RaybanM

    Ok!… Good read.

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