Knowing When You Should Sell to Another Company and Staying Lean

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  • Hiten Shah , Co-Founder and CEO Kissmetrics

We hope to see you at the next Soapbox. We'll update this page soon with interesting tidbits about the event plus the podcast!

About Hiten Shah

Hiten Shah has been a good friend of ours for awhile now so it was good to have him drop by ZURB HQ for our latest soapbox. This was the first time that we had the opportunity to sit down and chew the fat on the various challenges he's faced over the years, from his early days to hitting it big with KISSmetrics.

Hiten was very candid about the failures that he and his partner Neil Patel had before KISSmetrics, such as burning through $1 million dollars creating a web-hosting site that never saw the light of day. He shared with us the missteps they took in developing that product and why they ended up wasting thousands upon thousands of dollars on products that didn't pan out. He also told us why figuring out the riskiest assumption in your startup or product can help save you from wasting a lot of time and money on something that'll only crash and burn.

Feel free to listen to the podcast below as you read through some of the highlights of the event below.

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Checking Your Blind Spot

Before Hiten and Neil struck gold with KISSmetrics and Crazy Egg, they had ACS, a consultation firm, which ventured into products. They ended up building some 20 of them. The products didn't really pan out and fizzled out before they ever reached the hands of customers.

One of their earliest efforts was a podcasting advertising network. However, they failed to understand anything about advertisers and their needs. In other words, they didn't really grok the business they were trying to cater to — something they didn't realize until it was too late. Something that happens all too often to other business ventures.

There is a misinformation or a blind spot that you have that you don't actually realize.

Advertisers, Hiten said, weren't willing to shift from paying for radio spots to paying for ads attached to a podcast. The idea just wasn't a viable business model at the end of the day, said Hiten.

With their attempt at a social media tracker in about 2005, called Buzztracker, the failure was a different. Fear had gotten the better of them. As Hiten put it:

With that one, we were afraid to charge people. We made it free.

Other businesses were able to charge and thrive because of it, some picked up by Salesforce, said Hiten. But Hiten admits that the problems they faced with their early product attempts had to do with their approach.

The market just wasn't ready and we didn't really do our homework in understanding the user.

Pouring Money Into A Dream That Wasn't A Reality

Hiten and Neil took a huge hit when it came to their idea for a web-hosting site. They spent a $1 million on the idea before giving it up.

[We] kept pouring money into it because we were chasing a dream that wasn't a reality and never would be for us.

Along the way they made a lot of bad decisions and didn't really have strong leadership focused on the idea because they were focused on their consulting business, which was paying the bills.

Once again, they had a blindside when it came to the web-hosting marketplace. Or as Hiten put it:

"Like the other ideas, there was something fundamental about the marketplace that we didn't understand. Like we didn't know what our opportunities should be and could because we really didn't go figure out what the opportunity is in hosting."

They weren't really focused, casting too wide a net when it came to the hosting market.

We sorta blindly approached the problem and didn't really focus on a single customer paying. Or a problem that existed. And when you are in a really crowded market like that and you really need to solve a — you always need to solve a problem, but you really need to find a deep problem and an opportunity.

In other words, they didn't know who exactly would use the product and what the exact problem they'd be solving. Hiten said that a lot of other companies, such as Slicehost, ended up being successful because they focused on a particular niche and customer. Unlike Hiten and Neil, those other companies found an opportunity in a crowded market.

Going Lean and Seeing Patterns

Eventually, Hiten turned to Eric Ries' "The Lean Startup" and applied that philosophy to other ventures, such as KISSmetrics and Crazy Egg. That book along with other books and talking with fellow entrepreneurs allowed Hiten to see the patterns in his failures. There were also patterns in his success. When it came to hitting gold with KISSmetrics and Crazy Egg, here's what Hiten said:

You can call it a turnaround, but it's more so that if you try enough things, enough times something will work.

But also because you've tried so much, you begin to see the patterns in what you've done.

Because you've failed so much you have this inherent understanding of what you did wrong, but there's usually a pattern and the pattern is actually you didn't do the right thing at the right time.

Finding the Key Risk

One thing Hiten learned after looking back at his early missteps was ferreting out the wrong ideas without spending too much money or wasting anyone's time.

I personally hate wasting my own time, but wasting other people's time more than I hate more than I hate wasting money.

When it comes to building product, whether your Google or a startup, there's always a key risk with anything you're working on, said Hiten.

The think I've learned and the thing that helped us turnaround, if you want to call it that, or be more right is by actually figuring out what the risky thing is and addressing that first with the least amount of effort.

What other entrepreneurs can do to prevent wasting time and money on a bad idea is to break down what they're working on. They also should be honest with themselves about what the risky thing is, said Hiten.

To go back to the podcast advertising network idea, the risky thing there was that they didn't answer the question of "will advertisers pay for this?" Hiten said they never really addressed that, at all.

You have to evaluate and test whether your concept is valid. Think of it this way:

If this is not true, then I don't have a business.

"It's Never Too Early for Freemium"

We spoke for a brief time about the Freemium business model. As Hiten pointed out, every few years someone proclaims that Freemium is either dead or Freemium is totally the way to go. But as Hiten puts it:

It's never too early for freemium.

Hiten said there are several reasons to do free. If you think there are millions that can use it for free and you can then convert users to make a substantial amount of money, then Freemium might benefit you. Or you could use a free trial to get word of mouth, but that could backfire if the product isn't really that good. Going Freemium really depends on the situation.

Our conversation with Hiten continued as he talked about the acquisition of ShareFeed and KISSinsights by two different companies. As Hiten pointed out, companies don't really get sold, they get bought. Someone has to want to buy them. We want to thank Hiten for dropping by and giving us some great insights!

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Ryan: So, just a little bit of an introduction here. Before Hiten Shah and his partner, Neil Patel hit it big with KISSmetrics, the web analytics tool that we all use and love, they went through thousands upon thousands of dollars on failed projects, even spending $1million on web hosting site that never saw the light of day.

Eventually, Hiten turned to Eric Ries's, 'A Lean Startup Method', and used that with KISSmetrics and Crazy Egg, both which were wild successes. Not only that, but Hiten has gotten involved with some side projects, including ShareFeet, which recently got acquired by Joel Gaston's Buffer.

I want to get into all of that, but first off, let's please give a warm welcome to Hiten Shah, cofounder and CEO of KISSmetrics.

Hiten Shah: Thank you.

Ryan: Well, first of all, Hiten . . . Opps. Let's see. It keeps sliding. First of all, Hiten, I want to say welcome to ZURB Soapbox. Glad to have you here.

Hiten Shah: Happy to be here.

Ryan: Glad to talk and chat and all that good stuff. I know the audience probably has tons of questions and we'll get to those. We'll just ask a few questions and we'll hand it all to you guys. To get started, I kind of wanted to go a little bit backwards . . .

Hiten Shah: Sure.

Ryan: In time, before you and Neil started KISSmetrics, you guys started ACS, which is a consultation firm. You guys ventured eventually into projects, creating 20 of them. What were some of those particular products and why didn't any of them take off?

Hiten Shah: Sure. One of them was a podcast advertising network. I think it was '05, '06, maybe a little bit earlier that we launched that. And the main reason that one didn't take off is it was like Marketplace. We decided to partner with Development Shop on it, and decided to build to build it.

Basically, we had a very good idea of the podcaster and their problems but we didn't really understand anything about the advertisers or how much they would pay for reaching podcasters and stuff of that.

That was just one where I think the pattern is we didn't understand something about the business, and in fact the embarrassing part of that one is that it launched on TechCrunch, like a lot of stuff does, and basically Michael Arrington told us the CPM, that people paid for radio that we didn't even know.

He said that that's absurd what these guys are charging or think you may want to charge advertisers as a result.

I would say that usually there is a misinformation that you have, or a blind spot that you have that you don't actually realize. So, that one is the most interesting when it comes to that blind spot that I see that we had. A lot of our other ideas had similar kinds of issues.

Ryan: Were you guys able to kind of investigate that blind spot a little bit afterwards? Kind of see what kind of went wrong?

Hiten Shah: Yes. Sure, we did. But, at the end of the day, it actually led to the point where it just wasn't a viable business. The main reason was kind of like advertisers were really excited about radio and kind of stuck on that model, and it would have been challenging to get them to shift. If you think about it, there really isn't any digital audio advertising platform or marketplace today and it's probably because of the mismatch still exists.

I guess you mentioned a couple other ideas. Another idea we had was we built sort of like a buzz tracker, sort of like a social media tracker, if you want to call it that. We were probably one of the first ones to build something like that.

In that case, the failure was a little bit different where we kind of understood the market. It was basically a search box. You typed it in. It crawled like Flicker and like Blogs, and Technorati all of kinds of stuff to kind of just show you search results of social web. It was super early. Again, that was '04, '05, I think.

With that one, we were just scared to charge people. We just made it free and let it sit there, and just didn't think.

We didn't know any better at the time. We didn't want to charge anyone for some reason, although at this point, there were businesses that have built that have gotten sold to sales force and are driving right now for charging for that.

The other thing is both of those ideas were probably too early for their time. And what that means is that the market just wasn't ready, and we didn't really do our homework, understanding the users and stuff like that.

Ryan: Was it also too early for kind of like the freemium business model, where you just put something out there and see what happens?

Hiten Shah: Yes. We can talk about freemium a lot. I'd say I'm probably a professor in freemium at this point. The short answer is no. It's never too early for freemium. The longer answer or more thorough answer is every few years people say' free is dead', or 'free is the way to go'. It just depends on your market, right? Your opportunity.

I'd say there are a number of reasons you could do free. You can do free if you think there are millions of people who could use your product for free and you're going to convert. If you only convert like a single digit percentage than you can make a substantial amount of money. That's one reason you would go free.

Another reason you might go free is just so that people can sort of use the thing, and that might free trial but that wouldn't really be freemium. There are scenarios where you have a couple hundred thousand market size and you might just want a free product so that you can sort of get word of mouth and stuff like that, but it's probably really constrained and might not be that awesome, which means it might not get word of mouth, but that's a different problem.

Anyways, I'm not a proponent either way. I think it really depends on the situation.

Ryan: Okay, speaking of all of these other products, there was also the web hosting site which you guys did spend a million on.

Hiten Shah: Yes.

Ryan: What kind of happened there, and why is it that you guys never launched? What were some of the lessons you kind of learned out of that situation?

Hiten Shah: Sure. We were able to pour money into whatever we wanted to at the time because we were making money, running a pretty successful consulting company, very similar to ZURB in terms of the services oriented nature of it. We always sort of wanted to build products just like you guys.

The issue we ran into was I'd say we really didn't have strong leadership focused on it, we weren't really focused on it. We were focused on our consulting company. That kind of paid the bills for us, so I would say that's the least of the problem, but that was definitely an issue. We didn't really have enough focus on a project like that.

That kind of snowballed and we kept just pouring money into it. We kept, sort of, chasing a dream that wasn't a reality, and would never be for us. Just lots of bad decisions along the way. That's the one we probably spent the longest time on, and the most amount of money. Ultimately, I think, just like with the other ideas, there is something fundamental about the marketplace that we didn't understand.

We didn't actually know what our opportunities should be and could be because we didn't really try to figure out what the opportunity is in hosting. There has been a lot of things come up in hosting that are small things, large things that have been successful.

It's not that we couldn't have been successful. It's just that we sort of blindly approached the problem and didn't really focus on a single customer pain or a problem that existed. When you're in a really crowded market like that, you always really need to solve a problem, but you really need to find a deep problem and opportunity.

Ryan: I see. It was almost as if you guys hadn't kind of learned who exactly would be using the service, exactly?

Hiten Shah: What problem they had, tight? There are companies like Slice Host, there are all kinds of companies that have been successful because they focused on a niche and a specific problem and pain. Like I believe Slicehost was really easy to get up and running if you're a developer and probably one of the easiest products out there, although it's ruined now, but I won't get into that.

Somebody bought it. Someone made millions of dollars. But, yes. It was one of my favorite products for the last few years, but essentially they found an opportunity in a really crowded market and found a way to market it. They essentially marketed with developers, actually, at the time, in Rack Space Bottom.

Ryan: Was it because you guys were trying to be like really broad in your just like, "Let's cast this wide net until we get people?"

Hiten Shah: Yes. That's a good explanation. Yes. We were definitely trying to be really broad with the hosting company and we just did all kinds of unnecessary things around the investment in it that we didn't have to do to actually build a real business, right? We invested in a data center. We invested in a bunch of servers.

My cofounder learned everything about networks and all kinds of switches and crap like that, that he probably has completely forgotten, thankfully. We started learning about all of these things that probably didn't matter, right? They weren't really the riskiest part of the business. The riskiest part of that business was really, can we get customers to sign up for something for a good reason.

Ryan: Right.

Hiten Shah: Right? We never tested that.

Ryan: So, user testing is very important.

Hiten Shah: Yes.

Ryan: Very good. Even through all of that you eventually kind of turned to Eric Ries's, 'The Lean Startup Method' . . .

Hiten Shah: Yes.

Ryan: Which I'm sure all of us have read, and I think there is a copy floating around in the office. You did turn to that, and once you did, when did you exactly do that? And then also, what is it after reading all that that you realized had gone wrong with the other ventures?

Hiten Shah: Yes. For us, we did have a success before that. It was before we really grasped those kinds of concepts, but in our own successes in our consulting company and some of our customers, and also with our Crazy Egg product, and even some of the other products we had built, they got usage.

Like the Buzz Tracker had a lot of usage. It didn't necessarily hit on a pain, but we just didn't want to charge for it, for whatever reason. I would say that the reason I like the stuff Eric has put together more than anything else is that there are patterns in failure that I discovered about the things we did that are painfully described in the book.

I was really into this stuff before the book and more into it with this blog post. So there are a lot of patterns there. There is also a lot of sort of ways of kind of dealing with uncertainty and ways to discover what the pain is and the problem is in your marketing and stuff like that.

In our successes, we found the same patterns, or similar patterns. And a lot of entrepreneurs have as well, so having a resource and a community and content and all of that around that was really useful. That's why I'm excited about it, and like to tell people about it.

At the same time, we're all entrepreneurs and we think we're right. The book is kind of humbling if you actually try to go through some of the processes in there, which unfortunately very few people do even after reading the book.

Ryan: To kind of go along with those processes, what were some of those things you brought from Eric, who actually is one of your advisors into the both Crazy Egg and KISSmetrics? What do startups learn from your missteps? How do they actually turn themselves around like you guys did?

Hiten Shah: Sure. One there is, you can call it a turnaround but it was more so like if you try enough things enough times something will work, right?

I think the big is like when I think of all these things we did, now I try to think about, okay, how could I have known it was the wrong thing to do without spending as much money, time, effort, energy, whatever it is, right?

I personally always hate wasting my own time but wasting other people's time more than I even hate wasting money. I'll waste money. That's okay, because there is a lot of money around, anyways.

But, for me, it's really just the fact that at any given time in any business, whether you're starting out or it's kind of like a business like Google, for example, there is a key risky thing in each sort of endeavor that you're working on, right?

The thing I learned and the thing that I think helped us turn around, if you want to call it that, or be more right, maybe, is by actually figuring out what that risky thing is and addressing that first with the least amount of effort.

That's really what I learned, kind of looking at the patterns, reading the books and other books and talking to a lot of people, even talking to a lot of entrepreneurs.

It's really just at some point, because you felt so much, you have this inherit understanding of what you did wrong, but there's usually a pattern and the pattern actually is that you didn't do the right thing at the right time. And at even given time, even with Google, they have this issue.

There are really risky assumptions they're making when they launch stuff. And when you see certain things of theirs fail, I think they spent too much effort on the wrong thing. To me, it's all about breaking down whatever you're doing and being honest with yourself about the riskiest thing is.

For example, in our podcast advertising idea, the risky thing was probably answering the question, will advertisers pay for audio ads on digital audio and podcasts? We never addressed that at all.

Ryan: How is it that you guys nowadays assess very succinctly what that risky avenue is and what are kind of the steps that you take to just address that and nip it in the butt before it becomes something bigger than it is?

Hiten Shah: Sure. I think that has a lot to do with understanding what you're actually trying to do. I'll give an example of someone in the room I just met today, in person. He has an idea, and I know he's here, so it's going to be fun.

He has an idea and his idea is basically helping small businesses do mobile marketing. I immediately heard the idea, and I'm like, "Okay. All right. I've heard that idea before." What he said was that, "No. What I'm doing is actually a SaaS product, and then the product, I'm going to charge a monthly fee for it to these people."

I was like, "OK." That's more interesting to me because a lot of people try to give this kind of thing for free and don't realize there are costs associated with it, or don't realize that people are willing to pay.

Then as I was talking to him, I actually realized he already started talking to me, and he started three different companies before as well, but he started talking to me about the riskiest assumption.

It seemed like he already validated it. His riskiest assumption was actually, to me, when I started talking to him, when I just thought of it right now, was that if a small business does mobile marketing, basically and sends out, let's say, text messages to their patrons, right?

That's kind of the model. Somehow he has to collect them. One risky assumption is can he get those small businesses to collect, or to get their patrons to opt in to getting messages, right, from the business? That's one risky assumption.

I'm not sure if that's the riskiest because when you look at patterns and behavior, it's kind of happening already. The other risky one, which I thought was very interesting because he already talked to me about some conversion rates was actually will people if they see the message, actually come to the restroom.

Without him even knowing it, he's here somewhere, I don't even see him but whatever. He essentially figured that out. I don't know how long it took him but for me, if I were to assess that idea, I would have been like, "OK".

Well, it's really just looking at the user's behaviors, right? "There are businesses that need to pay for it". Well, why would they pay for it? They'd pay for it if you can get them, people in the store, buying again. Right?

I think he literally validated that. If you think about it, you could have easily validated that in less than a week, with no technology. Because you could have went into the store, printed something out, got people to opt into some phone, give the phone number on some little website or some Google form or something on a website, and then literally got all the emails.

Then ask the restaurant to tell you when you should send the text, and see if anybody comes in as a result of the text. You just say, "Show the text to get your discount," or whatever it is. That's how I do it. Just think about the user behavior, the different types of customers, and what the piece that is kind of the riskiest is.

Basically the way to think about it is if this is not true I don't have a business. So if he couldn't get those customers or those consumers to come into the restaurant and spend money there's no business there, because otherwise why would anyone pay for it?

Ryan: Right.

Hiten Shah: Anyways, that's an example. It's better with examples.

Ryan: Right. Exactly.

Hiten Shah: And sorry, dude. Now everyone's going to steal your idea.

Ryan: Raise your hand so we can all pelt you with questions afterwards.

Hiten Shah: See, you should go work with him if you're interested in the idea.

Ryan: Very good. It kind of segways to risky assumptions and taking risk and all of that. There also comes a point when you do build a product and you've worked on it for years and it comes time to exit. You've done that with your side project, ShareFeed recently with Buffer.

For a lot of young entrepreneurs it's hard for them not to see that huge exit when you read about it on TechCrunch and all the other blogs and stuff about billion dollar acquisitions of Instagram and all these other things. Really, when it is that people should know when it's the right time to sell and how did you know with ShareFeed?

Hiten Shah: Sure. The general way to think about it is that companies don't get sold. They get bought. Someone needs to want to buy them, and it has to make sense for them or you're never going to get anyone . . . You go out to get it sold and you run into all kinds of trouble. I've seen that a lot.

Or you have acquisitions that sort of don't return money to investors or make you that much money. They're just done because you sort of want to end the thing.

One scenario is you just want to end it, so you go look for a buyer, which really sucks. It's a bad scenario. In the case of Share Feed, for us specifically, I'd already known the Buffer guys who bought it. They were already building a tool we built. It was a KISSmetrics product.

We built the tool many years ago and we had a user base and people were still using it. We've been talking for awhile because they're just friends of mine and I like helping them. They're awesome. They're working on a problem that I really care about that we weren't really focusing on.

It just made sense to sort of let them have the user base, and let them take it and kind of run with it. That's kind of how we approached that.

In that case, I wasn't necessarily trying to sell it. I was just trying to offload it from my team. In that case we actually did have a conversation where I'm pretty sure I instigated, and said, "Hey. I don't want this thing. You guys do something with it because you keep growing and it's there and it exists." Right?

They're like, "Yes. Let's figure it out." That was a pretty easy one because it was a mutual understanding and I did try to sell it on that one and it worked. I had already known them and we had a really good relationship and I love helping those guys.

For that , it was just more to help them out is why I thought it was a good thing. I don't think they would have ever specifically approached me, right, about it, but they knew I already had it and I had already been sort of helping them, informally.

Ryan: Very good. And it almost seems like it was just serendipity. Like they had something that you were doing that you didn't need anymore and they had a need u were doing.

Hiten Shah: Yes. And I was dying to have no reason to use it. I kept using it even though I should be using their tool. There were just some dynamics there. I'd say that's pretty much an anomaly. Yes.

Ryan: Got you. In terms of that, you've actually become an advisor to them, in terms of ShareFeed. What has that done going from CEO to advisor and how does that kind of change the perspective on things?

Hiten Shah: On that one, it was just a part of our product. I mean, not even a part. It was a separate product we built because it was a need that we had and it was a pain. For me, there wasn't anything big there except that like, know I can advise them kind of how they can grow their business and stuff like that. It was pretty simple. There wasn't any CEO psychology or anything going on there, on that one.

Ryan: What is CEO psychology?

Hiten Shah: I don't know. I mean there is no issue. You're implying it, not me.

Ryan: I tried, folks. I tried. They'll be a book in the fall.

Hiten Shah: No. No books, ever.

Ryan: To go along with the theme of knowing when to sell, you guys also recently sold off your web survey tool, Kiss Insights, as well. With that, first of all, kind of why sell that? Was there something also there, about it not fitting in with KISSmetrics' overall mission? How did you guys know it was just time to let it go?

Hiten Shah: Sure. That was more than serendipity and there is a different story there. That one is interesting to talk about. It was yet another thing that my team and I built, we built a couple years ago. It was actually a growing business. It made money. It was profitable in its own little bucket.

The problem with that business for us was that our main business, KISSmetrics, is really sort of taking off, not even sort of. It's taking off and we couldn't pour resources on the other product. Like we couldn't go spend the engineering time that we would have wanted to make it grow even more, and make it a more substantial part of our business.

You can always figure out how to make something strategic if you've already built it , which was easy for us to do for a long time, but we sort of saw the darkness at the end of the tunnel versus the light on that one, whereas like, if we keep going at this pace customers won't be as happy as they should be in the long run.

We haven't improved the product in a major way in at least about four to six months, although we maintained it. We kept it on because it was still making money and profitable. Shawn Ellis [SP] who bought it was already an advisor to the company, and he had been an advisor for a long time.

He gave us advice on building it early on, as well. He was really helpful there. His own current business was sort of going through a pivot and a realization around what their big market opportunities were. We were just talking about it one day, right? It came up, like that some of the things that he wanted to do were very related to what we were already doing there. We just figured out a deal.

Honestly, that deal happened in less than a month because we already knew each other. We were friends and it was a very good deal for both sides. We made money and he got a product that's making money that he can take and sort of have an accelerated growth. Otherwise, he'd have to build up to that point, right? We had already been in the market, I think, about two and a half years or so, and it was making money.

It was a SaaS tool. It was, again, more opportunistic on both ends, and it was someone I already knew, right? In most cases, a lot of acquisitions are people you don't already know as well. Actually, that might not be true, but that's the way sometimes it works.

Or a partner you have, so you can think of this as we were already partnered with him. He was our advisor. He was a very helpful advisor, always has been. His business was taking sort of another turn and it was right in our eyeshot, so we figured that we should do that so we could focus on our main business and not having to worry about it.

We were spending, I would say the equivalent of about 60 hours a week out of our team working on it, so that 60 hours has been a relief. A lot of it was customer support and some engineering and bug fixing and stuff like that. It was just a smart move, the right thing to do.

Ryan: Right. It's like one of those things where this one aspect needs more attention than the other, and how do you kind of switch everyone to the thing that actually . . .

Hiten Shah: Make it a good thing, right? If we would have shut it down we wouldn't have made any more money from it. We wouldn't have gotten any benefit out of that. It was just a good timing on both parts and everything.

Also, for us, that one was a little bit harder because we spent a lot of time on the product, emotionally. We spent a lot of time on the product, had a lot of ideas of where it could go. It had a lot of customers on it. It had tens of thousands of customers on that product.

Ryan: Very good. Well, those were my questions and I want to open it up to the audience. We have about 15 minutes or so. I know a lot of you are itching to ask questions and there are a lot of you. If you just want to raise your hands, I'll pick you and you can ask Hiten here, a question.

Hiten Shah: Make them good. Yes.

Ryan: You had your hand up first.

Audience Member: Hi, I make no presumptions on quality.

Hiten Shah: I'm just messing around.

Ryan: The question was in regards to scale and having a freemium model, how do get customers to go from one tier to another tier?

Hiten Shah: I mean, first, you have to decide whether it even makes sense to have all those tiers. Like in KISSmetrics we don't really have a free plan. We have a free trial. In fact, it went from 30 days to 14 days recently, so now our free trial is only 14 days, while before last quarter, I guess three or four months ago, it was at 30 days.

I would say first you want to figure out what makes sense for your market. A free product could make sense for us because Google Analytics is free. People are used to that. We just haven't figured out something that excites us to do for free yet. We haven't done that.

In terms of from a free trial to paying customers, I think one of the best insights that we've gotten, at least in B2B, with KISSmetrics is that once they sign up, or the fact that they signed up means they are highly motivated. All you can do is screw it up from there. All any of us do is screw it up from there.

My thinking there is always, well they signed up. How can we make sure that we're learning about everything that they might need that we're not thinking of and sort of addressing that one by one? So what we do is spend a lot of time talking to everyone that signed up that might not have done the behavior that we want them to do next.

Like in our case, it's like if they sign up they need to integrate the product. And in some other company's case it might be like a project management tool. They need to create a first project and invite a bunch of people. What we spend a lot of time on to understand, is why did someone not do something, and really sort of analyze that and figure out why they're not doing it and sort of support them?

I would say the framework I would think of when I'm thinking of how to move people through steps in general, B2B, B2C, anything is like figure out why they're not doing it. And the way you're going to do that is by actually talking to the people, surveying them, running Kiss Insight surveys, and stuff like that on the people that didn't do it.

That's when you actually get the most insights and that will help you figure out what kind of changes to make, and AB tests to run. That works in everything.

Ryan: The question was, how do you apply the 'Lean Startup' methodology to large organizations and enterprise type businesses?

Hiten Shah: Yes. The process you want to go through regardless of market enterprise or not, is talking to them in person, or on the phone. That applies regardless. It's not just about surveying. The other end of it, the short answer is, yes.

In fact, this guy, Steve Blank who is a professor at Berkeley and Stanford, his stuff is all about enterprise, originally. There's a book called, 'Four Steps of Epiphany'. He has a new book called, 'The Startup Owner's Manual.'

I just look at those books. I mean they tell you how to go through this process. You have to map the [ord] chart and talk to five, ten of them and give them different presentations. He has it all mapped out. In fact, a lot of this stuff is B2B. I mean it works across B2B, B2C.

One of my friends has a car company, and he's applying 'Lean' methodology and customer involvement and all that stuff to a car. Like, they build the prototype in their office. Like it's just crazy. Right? If they can do it with a car, like, literally a car, it's actually more like a car-motorcycle, but anyways. It doesn't fall down. It's really crazy.

Yes, Lip Motors, there you go. Yes. They're doing it with cars. They're doing it with probably a hundredth of the budget anyone else would get to the same place. Yes, he knows.

Ryan: Next question. The question was how do you go about testing products and gauging interest in the market?

Hiten Shah: Yes. Your job is to figure out what pain people have anyways, whether it's a new market, like that one or even, you're re-segmenting an existing market. If that's a scenario, then there is some pain. If you find the pain, there isn't that whole problem of, I've never seen it before.

Just think about anything that's like, especially when it comes to a business customer. On the business side people can use things so fast, even if they haven't seen it before if you can give them a very happy experience, within the first, sort of, session or the first couple hours of them using the product, you're usually fine.

It's really just finding the pain. No matter what market it is, if you find the pain then people will buy, if you're hitting it and it's what they need.

Ryan: The question was, to go back to the Kiss Insights questions, why not just go ahead and hire more people to maintain the site rather than having it acquired?

Hiten Shah: Sure. There are a bunch of strategic reasons but besides that it is just focus. That's all it is. It was two products and it was even the ShareFeed being a third one. We even have another one that just sits there and we're not doing anything with. We might even have a fourth one. All those didn't matter as much.

This one was making money. We didn't want to support it. We didn't want to spend any energy on it. We'd rather hire for our main product, which is growing faster.

Audience Member: Why did you build it in the first place?

Hiten Shah: We built it at a time, years ago, when we were experimenting with things. We didn't even think it would start making as much money as it was.

Ryan: I want to get that gentleman, way in the back, who has been raising his hand for awhile.

The question was, if Hiten was around when Google was still young, would he advise them on selling to Yahoo?

Hiten Shah: I wasn't, first of all. I think someone probably understood the opportunity there, and was willing to help them take the risk, at that time. I don't know. I'd tell them to take as much risk as you can. You guys are young. That's probably what I would have told them.

Audience Member: [inaudible 31;20]

Hiten Shah: I know, yes. I'm not an investor. It doesn't matter. I would have been like, "Do whatever you guys want. Be happy." I'm not an investor, though, and I can't put that hat on because I'm not, not that kind of investor.

Ryan: Next question. The question was, how long should a trial be, and how do you go about deciding what your pricing tiers should cover?

Hiten Shah: Yes. I think on a higher level, be open to trying stuff, but do it in an educated way. For a while, actually, honestly, I wasn't open to lowering it. Like I got pressure from all kinds of teams that would come to me, "Let's lower it." I'm like, "Ah, all right." It just probably clicked in my head at one point and I was like, all right, we can try with a certain percentage of users.

Trial period is a very interesting one on B2B companies, or even B2C companies because you give them too much time, and sort of what ends up happening, at least what we learned, is that they get unmotivated or they feel like they have so much time, that they don't actually spend the time to do what they need to do.

With our product you have to integrate it. The 14 days in the compressed time makes it so that they only sign-up when they're ready, number one. We know this because we tested this, surveyed them and stuff. They are also way more highly motivated to integrate it.

They might come and say, "Oh. I only have a 14 day trial. So, I'm not going to come back and sign up until I'm ready." Our amount of visits it takes has gone up a little bit before they sign up, but honestly our signup conversion has gone up for the 14 day trial. I have no idea why, and a lot of our other metrics have literally doubled with the 14 day trial.

The big thing I would say there is, be willing to try things, but also know why. So, we had problems with 30 days was too long. In our product you have to get a least one or two other people in the company into it if you're a large enough organization and if you're just beyond a startup, which we get the most.

We get more than just startups signing up for our product. So the 14 days has been really helpful in moving the ball forward in the organization that needs to integrate us. So that was why we did it.

Ryan: The gentleman in the purple shirt. He has been waiting for awhile.

The audience member wanted to know a little bit more about the structure of the two acquisitions.

Hiten Shah: Yes. In either of those scenarios, none of the team members went over. I've seen a lot of acquisitions at this point and deals made. I'll talk more generically because I think that's more important. If you have, basically, the cleanest way I've seen is if you have two sides of it, one is your assets in the company.

All of our sales have been asset sales, so they're basically money for the assets, very straightforward, very simple. It's either valued on revenue or valued on whatever the other side wants to value the assets at.

When it's a revenue generating business there is usually some kind of yearly run rate multiple that's done, and if it's SaaS it's like 'blah x', or whatever. That's pretty standard and people know what those numbers are.

The other side of it, though, when you have a deal and you have a team going as well, you basically have a process of the other company, in most cases, interviewing the team, and then basically giving offers to every member of the team. Whether it's equity, shares, or whatever, and salary and stuff like that.

Those are actually, in most cases, two separate sort of parallel tracks that you take, because some people may not want to join the acquiring company, and then that could hurt the deal, but like that's the cleanest way I've seen it done. There are other lots of messy ways but usually it's employees and team members, salaries and equity and compensation, and that includes earn-outs and stuff like that if they stay, and the other side is the asset value of the actual product.

Ryan: I want to get someone in the back, the gentleman way back there.

The audience member wanted to know if he should buy an office space or stay in his garage, as per the 'Lean' methodology.

Hiten Shah: That's not true. That has nothing to do with the 'Lean' methodology. First of all, that's not true.

Audience Member: [inaudible 35:45]

Hiten Shah: No, it's not.

Audience Member [inaudible 35:45]

Hiten Shah: It's up to you. Do you have team members you need to collaborate with that you can't get in your garage, for example, because there is not enough room or your mom is mad, whatever? I don't know.

Audience Member: [inaudible 35:56]

Hiten Shah: Honestly, I think it's very personal. In our company it's been four years. We didn't have an office until this June. We've been all over the U.S., one guy in Australia, and that's how it's been. I don't wish that upon anyone at this point, though. That's just because how I feel today. I might change my mind.

I think it's a very personal choice. Typically people like working in offices, so it might be a good idea, or working together in one place.

Audience Member: You have to give your mom equity.

Hiten Shah: Yes. Mom needs equity. There you go.

Ryan: The gentleman with the glasses, in the black shirt.

The question was, when it comes to people signing up and not using the product, how do you go back and kind of figure out what went wrong? Do you talk to a specific group of people? Or do you favor another group over another? How do you do that?

Hiten Shah: It depends on what you're trying to improve. The first step is to figure out where is the opportunity. Your opportunity might not be in the people who don't do it, because 80% are doing what you want them to do. That 20% might not be that important because you're probably not going to move the needle there.

If it's flipped and 20% are doing what you want them to, and 80% are not, then in that scenario you want to go focus on that 80% that are not. It just really depends on where the opportunity is in the business as to what segment you go for.

The way to think about it is you want a segment, so you have that difference. That's an important piece. And potentially, even prior to that, you want to basically baseline your metrics to understand where you need to improve.

The mistake I see people making is either they're not segmenting between those two, or even deeper segments, like type of user, type of business, stuff like that, or gender or age, things like that, or they're not base lining. They're just sort of shooting in the dark.

I want to improve my signup process. OK? Why? What part of it? Where's the opportunity in improving your signup process? It's those kinds of questions that I'd be asking in that scenario.

Ryan: The young lady in the white shirt.

The young lady wanted to know whether there was a period of support after the acquisitions.

Hiten Shah: There is usually always a period of support. Yes, absolutely.

Audience Member: So your team cannot go right away, they will be [inaudible 38:23]

Hiten Shah: Yes, but we have money. Yes.

Ryan: The question was how have you learned to keep focus and how do you continue to do so?

Hiten Shah: It's painful.

I mean, we used to suck at it. We were really bad at it. I think you have to have that realization that if you focus, that's how whatever you're focusing on moves the fastest the furthest, and just that realization takes time, because honestly I even try not to think about any other startup idea that I personally get excited about except what I'm working on today.

I have enough of it when I talk to other entrepreneurs and stuff like that, but I don't think about anything. People ask me, "What are you interested in?" I'll give them a space or a category and say that's it. I don't have anything. I don't have ideas in it, but I'm really curious about this.

That's the extent I go, because people keep asking me, but it's just maniacal. I'm focused on this. This is what's important to the business, and everything I think about is directed towards that. It's not that I'm not open to ideas, but they have to be about that.

All right. Once we got our organization even thinking more like that, everything started moving faster. We got 14 day trials instead of 30, because I got enough pressure.

Ryan: The question was, have you ever had to raise funding and how did you do so? Did you even have to bootstrap at a time?

Hiten Shah: I've done both. There is actually not much difference in a lot of ways. In a lot of ways there are a lot of differences. At the end of the day, you have to build a business either way. My recommendation to most people who are thinking of raising money is, have you built a business yet? Are you making any money? Do you know how that business is going to grow? Have you validated assumptions around how it's going to grow?

If you haven't done that, then spend more time doing that, because at the end of the day, even when you go out to investors and you're looking for money, they might not tell it to you like this, but essentially they're assessing you, your team, your market, your product, and your traction, and just trying to figure out a reason to say, no.

Usually that reason has to do with some risk that you haven't already invalidated. Or they don't feel confident about you, sort of being able to climb that mountain and kind of look on the other side of that risk. In either scenario I would say, make money. Don't stop. Usually money comes to you if you're doing that.

Ryan: One last question and make it a good one. I'll let Hiten pick the person this time.

Hiten Shah: You can fight for it. No. You've been raising your hand for awhile.

Ryan: The question was, when did you invest in a sales department?

Hiten Shah: Sure. Yes, we do. We did that pretty late, in my opinion, which was the middle of last year. I'd say if you're B2B and you know your business is either enterprise or it's a type of business or a price point where people are just not going to pull out a credit card and pay online, then I think you need a sales team.

Today, if I were to restart KISSmetrics, and start it again and have the same opportunity, I'd have sales from literally the first day, potentially aco- founders in sales or founding team would be an inside sales person or VP of sales. But, it depends.

[musical outro begins]

Ryan: Very good. We're just about out of time, and I want to thank Hiten for coming.

Hiten Shah: My pleasure.

Ryan: Very good to have you here once again. I appreciate everyone coming out to ZURB Soapbox. We'll have another one of these next month and I hope to see you all here.

Hiten Shah: Thank you.

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