6 Aug

How to cheat at online business

While I was working on The Web App Challenge a few people got upset when I decided to focus on a market that shared an audience with my blog. One email said it was “cheating” to build a product that could get sales from my existing audience. This idea misses the point entirely. Building a business is incredibly hard and you should use every advantage you have. The person who complained did have a good point, though. An audience is a huge advantage, enough of an advantage that it could be considered cheating when setting up a challenge such as mine.

In this post I want to show you how to build an audience as well. After all, having your own audience is like knowing cheat codes for business.

Finding a painful problem

I actually almost picked an entirely random market—lawyers, doctors, or project managers—to focus on for my challenge. The idea was to find a pain and solve it, no matter the industry. Solving a pain is good, but targeting a random industry is not a good long-term plan.

The first time I made this mistake was when I built a web application called OneMotion. It started as a contract project for $10,000, in which I was hired to build a scheduling and invoicing tool for a sign language interpreting agency.

Companies and the government are required by law to provide sign language interpreters for school classes, doctor appointments, interviews, and all kinds of other things. So these agencies gather all the companies and schools that need interpreters, then find freelance interpreters to fill those jobs.

The result is a frustrating management problem: assignments often have random schedules and many interpreters work part time (often for multiple agencies). Finding an interpreter for a particular assignment can be a frustrating process of calling multiple interpreters to find availability. Then invoicing at the end of the month is always hard: all these companies need a single invoice at one rate, then each individual interpreter (who worked many assignments for many different companies) need to be paid at a different rate.

This is really painful for the agency, but easy for software. Thus it is a painful problem to solve.

I negotiated the contract to build this software so that the company owned a copy of the code, but I did as well, and I had reselling rights. THis meant that I could turn this into a SaaS app and approach other agencies (just not their direct competitors).

Pretty great right? In other words, I got paid $10,000 to build my first SaaS app.

The wrong market

I’ll bet you’re wondering why you haven’t heard more about this. With my marketing ability it should be a very profitable app by now, right?

The first problem is this was back in December 2007 and back then I had no clue how to market or sell products. But second, I knew nothing about this market. Besides a few more customers from direct referrals, I never really grew beyond that first launch.

This business could have been grown into something small, but meaningful. But it would have been hard work. And you’re here for business cheat codes—which we’ll get to in a second.

But first I want to tell you about how I repeated this same mistake. In 2010 the iPad was coming out and I was trying to learn to program in Objective-C. I loved the design possibilities of the iPad, and wanted to work on my own project for it.

My sister-in-law was working with a boy who had non-verbal autism. He knew what to say, but couldn’t verbalize it. He used a rugged touch screen PC with custom software on it called a Dynavox. This thing was a dinosaur: heavy, 30 minute battery life, and ran Windows XP. Best of all, it cost $7,000. Did I mention the software was worse than the hardware?

I knew I could design better software, and by using the iPad the hardware was radically cheaper, lighter, and had battery life that was 1600% more efficient.

The next weekend I was down at the iPad Dev Camp in San Jose and started working on the project with a friend. At the end of the weekend we had a prototype. Four months later OneVoice was available on the App Store. I wrote about this more elsewhere, but the app has made over $50,000 in a couple years.

Losing interest

I worked hard to build both of those apps and then hustled for some initial sales, but I never found a reliable way to drive sales. Both apps solved painful problems, and both could become real businesses. Each one served an entirely different market, meaning work put into promoting one app didn’t help the others.

By the beginning of 2012 here’s what my products looked like:

audience-1

Commit and Fluent are both iPhone apps for building habits (Commit) and memorizing flash cards (Fluent). Wondering what the random arrangement of circles is? That’s a venn diagram. Note the lack of major overlap. My audience was completely different for each product. That’s a marketing nightmare.

My business was so fragmented I didn’t know how to grow it. Luckily, for most of that time I either paid the bills with consulting or had a full-time job.

An audience

Enough of my tale of marketing failures—or at least, not runaway successes. Things turned around in July 2012 when I started working on The App Design Handbook. People were interested, the product came together well, and best of all, it sold. Quite well.

Something finally clicked. People would pay attention—meaning I could promote a product in a sustainable way—if I taught. That never occurred to me before because I was targeting speech language pathologists, sign language interpreters, and other groups that I had no connection to. What would I teach them?

But app designers and developers I could teach. That teaching came in the form of articles and tutorials, which all worked to grow my email list.  (By the way, if you aren’t using an email list you are throwing money away). Then when it came time to work on a second product, my next book called Designing Web Applications, the audience had significant overlap. A venn diagram for the two audiences would look something like this:

audience-2

That’s the first time I had meaningful overlap in the audience for multiple products. It’s amazing. Now I can teach to promote a product, and effort promoting one product carries over to the others. That’s the coolest thing ever.

Building your audience

If you’ve read this far I can only assume it’s because you want to cheat at online business as well. The first step is to choose an audience—or at least a direction to start building one. You could spend tons of time thinking about your product ideas, who would be profitable to target, and painful problems, but now I like to start with a simpler question:

What are you?

This comes from Amy Hoy, who knocked some sense into me when I was thinking about building a web app for doctors or lawyers. She tells her students to ask, “What are you?”

Are you a designer? Create a product for designers. A speech language pathologist? Create a product for SLPs. A mom? Make products for moms. A freelancer? You get the idea.

I understand designers because I am one. I have something to teach designers because I am a designer. That makes building an audience so much easier.

We aren’t each limited to one identity or one skill. List out each of your identities and choose the best one to build a business around. Personally, I am a designer, a dad, a husband, a (wannabe) developer, an author, a marketer, and many other things that I can’t think of right now. Which one interests me the most and has the most business potential?

For me, when I started my blog, design was the most interesting and profitable, though lately I really enjoy marketing.

By choosing an audience like this you can generally ask, “What training would have saved me the most time getting to where I am today?” or “What products would make a difference in my everyday work?”

Finding a painful problem to solve is a good way to start a business, but it’s even better if it is a problem for an audience you are a part of or can teach something to.

Multiple products

Having an audience you can teach is very helpful when you have one product, but the true magic happens when you start to add multiple products. I was able to generate twice as much revenue from Designing Web Applications as from The App Design Handbook largely because I could cross sell to my existing audience. When each new product fits the audience you already have, launching each successive product becomes easier.

Let’s compare the businesses of two of my friends, Brennan Dunn and Patrick McKenzie. Both make hundreds of thousands of dollars in revenue each year from their digital products.

Brennan started by building a project management application targeted at freelancers called Planscope. That was his first product. His next product was a book called Double Your Freelancing Rate. It’s not an accident that freelancers are the target market for both products. The book release marked the start of Brennan actually building an audience.

He invited the customers from both products to subscribe to his blog where he regularly publishes articles for freelancers. With one unified audience it was much easier to add another product, a book called The Blueprint, to help the same audience.

Patrick McKenzie is a Ruby on Rails developer who writes a very popular blog on software development and marketing. His products include Bingo Card Creator (targeted at school teachers), Appointment Reminder (targeted at professional services companies—dentists, doctors, etc), and Hacking Lifecycle Emails (a course targeted at software marketers).

All three products have made a massive amount of money—so Patrick clearly knows what he is doing—but they all target very different audiences (just like my first few products). This means that any work put into growing Appointment Reminder doesn’t benefit Hacking Lifecycle Emails. Since school teachers don’t read his blog, his thousands of blog subscribers aren’t a benefit to Bingo Card Creator.

Talking with Patrick, he’s a little jealous of Brennan’s single audience. So Patrick’s next product overlaps nicely with the market from Hacking Lifecycle Emails and his blog. Soon he will have all the benefits of audience overlap.

A product eco-system

Just because you have a single audience doesn’t mean all your products need to be at the same level. In fact you can get considerable benefits by having introduction products and then later up-selling to higher tier products. Using Brennan as an example again, here’s another way to look at his products:

audience-3

He can get new customers through a single channel (his free email newsletter, Freelancers Weekly), and then sell them on his introduction book, Double Your Freelancing Rate. From there he can cross sell customers onto Planscope (where he gets recurring revenue) or up to The Blueprint, which is a more expensive course.

Finally, he can sell a few seats to an $1,800 workshop. Not everyone will be interested, but a few highly qualified customers will get a lot of benefit from the workshop and have the budget to pay. Despite only being run a few times, the workshop has made almost as much money as the other courses combined.

With the audience you’ve chosen, can you have both introduction products and higher tier products?

Your bank account will be quite happy if you can make it work well.

Somewhere in the middle

My own product/audience fit isn’t perfect, but I’m working on making it better. Once you add my two latest projects, Authority and ConvertKit, into the mix this is roughly my current situation:

audience-4

Looking at the products in this way, it’s easy to see which products should stay and which ones need to be killed off. OneMotion is already sold, now OneVoice needs to go as well. Despite the fact that it still makes me money, it’s not worth the mental energy to keep it around. The only reason Fluent is still here is because I haven’t had to think about it in over a year and a few people find it useful.

There is some overlap between Authority and my design books (many people who purchased Authority had already purchased one of the design books), but it’s not exactly the same audience.

Now ConvertKit and Authority have a very close overlap. Anyone following the marketing advice in Authority needs an email marketing provider, and I designed ConvertKit to follow those best practices exactly. Because of that I’ve had a lot of success getting those who purchased Authority to also sign up for ConvertKit.

Finally, Commit is a small app that doesn’t make much money, but the audience overlaps with Authority and ConvertKit, so it’s still useful.

My blog audience

A more targeted audience is usually better, but people read my blog for many different things: design, marketing, productivity, etc. These are the products that benefit from my audience:

 

audience-5

Looking at that, I should kill or sell everything that falls outside that circle. Any new products I create should be within that circle.

An ideal world

I could divide my audience into two major groups:

  • Designers
  • Writers/Marketers

There is considerable overlap between those groups (many designers want to market products), but making that distinction helps me think about which products come next. Looking at it like that I see that I only serve the designers with two products, both being books. What else does that audience need?

They definitely need a new version of The App Design Handbook, but I think a Photoshop course is the next logical step. So that’s coming late this fall (sign up for my email list to hear more). Photoshop plugins, brushes, or other design resources could be another option for other designers, but I’m not really into creating that kind of thing.

Now what can I do for the writers/marketers? I already have a book outlining the tactics (Authority), a tool to help you implement the tactics (ConvertKit), and an app to remind you to make progress every day (Commit).

Other ideas include a workshop for marketers or a membership site with regularly updated case studies, writing advice, and a discussion forum where marketers can privately ask questions and share what’s working.

Top down

Ideally within each audience (designers and writers/marketers) my products would look like this:

audience-6

That diagram shows a perfect product eco-system:

  • A free newsletter or other content to bring in potential customers and start to build trust.
  • An introduction product (priced between $19 and $39) to turn subscribers into customers.
  • A mid-tier product you can up-sell to everyone who purchases the introduction product (priced around $249).
  • A premium product for a tiny portion of your audience that will get value from it and can afford it (priced at $499 to $1999).

Often the premium product will drive just as much revenue as the introduction product, sometimes as much as the introduction and mid-tier products combined.

Want an actual example? Scroll back up and look at Brennan’s product eco-system. That’s exactly what he built.

I also want you to note that there is room for more products. Within that one audience you could have as many as six or seven products so long as they each provided value. In that case a few members of your audience will have a customer lifetime value of over $3,000!

Integrating subscriptions

This gets even more powerful when you can integrate a subscription service such as a SaaS application or a membership site. That smaller monthly amount (say $50) from each customer can turn significant revenue over time. One time sales (like ebooks and courses) are much easier to sell than subscription products, though a subscription is much better for your business long term. This product eco-system is so powerful because you can make the easy sales to build trust and demonstrate value, then cross-sell the subscription service for long term revenue.

That’s exactly what Brennan has done with Planscope and what I’ve done with ConvertKit. Given enough time to grow, both of those SaaS products will generate more per month than all the other products combined. But until then it’s great to have money coming in from other products.

Start cheating

Hopefully I’ve given you a little taste of what’s possible and inspired you to start creating your own audience. Start by asking “What am I?” and then solve a pain that you have. Then start writing that first book, launching the first training course, or creating your first software product.

Or if you want an audience without creating a product first, write a short guide or course and give it away in trade for email addresses. I did that with Mastering Product Launches, which now has over 1,300 subscribers.

If you already have products with a fragmented audience, choose the product that you enjoy working on the most (and that you have something to teach on) and create more products around it. That’s what Patrick McKenzie is doing with his blog and Hacking Lifecycle Emails course.

Here’s what I want you to get from this article:

  • Building your own audience is the best way to cheat at online business.
  • What are you? If you are a Rails developer, build products for Rails developers.
  • Stick to a single audience so that your marketing efforts have the biggest effect.
  • Plan and price your products to have introduction products all the way up to top dollar products for a few customers.
  • Kill (or place on autopilot) products that don’t fit your core audience.
  • Use email to build your audience. It’s 15x as effective as Twitter or Facebook.

For more help on creating and launching that first product, go read Authority. It’s everything I know on that topic condensed into one ZIP file.

Learn the art of a successful product launch

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19 Responses to “How to cheat at online business”

  1. Jack says:

    This is such in-depth information and is incredibly valuable for what I am trying to do.

    I have a question about how to handle the up-sell process through email. So, when someone is on one of your pre-customer lists and then goes on to buy your intro level product, I presume you move them onto a customer email list to let them know about mid-tier and premium products.

    I know that through aweber you can set up an automation rule that takes them off one list if they go onto another, but how does this opt-in work? Can you send blog broadcast emails, updates about your products, or any type of email if someone has bought your product? Or, do you have to make someone opt-in again?


    • Nathan Barry says:

      That would be different for each system you use. I usually just segment the buyers of each product so I can contact them later.


  2. Irina says:

    Great article, thanks!


  3. Norman says:

    I’m not sure about this approach. For example, Patrick Mackenzie started selling Bingo Cards to teachers on US from Japan.


  4. Great advice Nathan.

    This is something I’ve been thinking a lot about lately — focusing more on the “long game”, then deciding whether or not every new venture fits into that longterm vision. If it doesn’t, skip it (or can it). From a marketing/content perspective, it totally makes sense to stick to the space you know and are passionate about.


  5. Marcin says:

    I agree with you all the way. Why anyone should try building a product in a totally different niche if there’s a lot of potential to grow with your existing audience? We shouldn’t make things harder for ourselves without a good reason.

    I wonder if one can grow by just launching products and building relationship via email with the customers, not freebie seekers. Do you think building a blog/newsletter is neccessary?

    I think that someone who subscribes to your “product teaser” page has a different attitude than a person subscribing to your newsletter after reading a blog post. Then it’s just a matter how you can drive traffic to your teaser page…what’s your opinion?


  6. Great read Nathan!


  7. fefa la mocha says:

    Another Photoshop tutorial on the Web? What about Sketch 2 wich is gaining momentum?


  8. Interesting article, with some good points. But if we followed the ‘what are you’ advice, wouldn’t all developers just be selling products to other developers?

    I sell a product to event planners. I am a developer, not an event planner. But I think very few people in the world (if any) are both event planners and have sufficient development skills to create my product.

    It is nice if you can sell into a domain you know really well – but I don’t think it essential. Part of being a developer is learning other domains, after all.


    • I agree with you Andy and have struggled with the “solve a pain that you have” idea. As a developer I have access to great tools so does that mean I should try and make another developer tool? Not necessarily.

      As Nathan said, “What am I?” can be a few things. Yes I am a developer but I am also a small business owner, a music fan, etc. Even if any of these areas fail you in coming up with a product you can partner with a domain expert (or learn from them) to build a product for their problem.


  9. […] Nathan Barry’s article, How to Cheat at Online Business […]


  10. One of the best descriptions on how to take what you know and do and make money with it.

    Your plan is simple, but effective.

    I like you question what do people ask you about as a set up to guide you into knowing what to produce.

    Thanks,

    Owen


  11. Fantastic post Nathan. Thanks for providing such great insights!

    Do you recommend building an audience before you introduce products? If so, how large does the audience need to be?


    • Nathan Barry says:

      I actually like a product first approach. I find it easier to get people to sign up for an email list targeted towards a specific product.


  12. […] give one example from someone who I think uses diagrams very well to show you what I mean. In his How to Cheat at Online Business blogpost, Nathan Barry, a developer and writer, is explaining the development of his product range […]


  13. Hi there just wanted to give you a quick heads up and let you know a few of the images aren’t loading properly.
    I’m not sure why but I think its a linking issue. I’ve tried it in two different browsers and both show the same results.


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