How to Raise Prices & Launch Growth Services

Colin and Brent discuss raising prices, launching their new google review service, and buying vs building.

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[00:00:00] Colin Keeley: All right. Hello and welcome back. This is Colin Keeley here and

[00:00:04] Brent Sanders: I'm Brent Sanders.

[00:00:06] Colin Keeley: We are two guys buying and building wonderful internet companies.

[00:00:10] Brent Sanders: And today we're going to talk about everybody's favorite subject, raising prices. recently we, sent out an email one year after, our acquisition of Scout that we're finally doing what we were, I think, intending, I think your idea was to do it within like the first couple months, but I said we had to improve the product at least a little bit, show some value and we've definitely invested a lot and we've improved the product, but, we finally sent the notice that we're, we're bringing prices up to kind of modern day.

[00:00:41] Colin Keeley: Yeah. so they hadn't had a price increase in quite a while. Some things I think were mispriced like the branded apps, or the white labeling basically was way too low based on the amount of work involved for us. and so for the last six months, all new customers had this much higher pricing, but we haven't rolled it out to legacy customers.

so we just told them it's coming, gave them 30 days notice. we only had one person swear at us. So overall pretty successful.

[00:01:08] Brent Sanders: I keep forgetting about that guy. Yeah, there was, he was pretty angry. But,I, I'm hoping people have seen the value that we were, we're putting into this or the, the investment that we're putting into it.

We definitely are adding features. They're getting more for their money, but. The, let's talk about the reality, whether they feel like that or not, which is maybe more hopeful. They feel like it's the same junk they've been paying for for the last, however amount of years. All of our competitors have raised prices, especially, the main competitor in this space, like the sort of premier product is, almost double our pricing, right?

I mean, what they've raised it to now. it's similar.

[00:01:44] Colin Keeley: I'm lower. They're higher on the lower end. I think we're a little higher on the higher end. so on the, our thinking there is like, I also want to do freemium over time of, we just want people to get in the door. And the reality of those vertical software stuff is like, once they're in the door and they start growing with you, they don't really change that often.

That's a small fraction of the market that changes. so we want to get people going. and I think the smaller customers are the price sensitive ones. The bigger customers basically look at us as like, well, I could use this software or I could hire like a full time admin and they're, tens of thousands of dollars a year and scout or, scout competitors are far cheaper than that.

So it's like an obvious expense for them.

[00:02:26] Brent Sanders: Yeah. So I feel like I've had, three conversations with big customers that have been paying. For the branded app. And so what people that are listening, understand what the branded app is, it's a mobile app cross platform that was written God knows when, like probably 2016 that we have to kind of maintain and we throw their logo on it and has special behavior.

And it was largely languishing by the time we took the business over like that they wouldn't do anymore because it was just too big of a pain in the ass. So immediately we raised that price to 3, 600 a year now, and it was 590 a year before. So massive price difference and people were buying new customers were signing up.

They see the value of like, Hey, I'm going to get my own mobile app. If I do that, it's at least 10, 000 on the very slightest. And then how do I get all these other features? So they definitely saw the value. People have been, transacting fairly regularly with that, but I get it. Like you, you signed up at one price.

So I actually just got off a call with, one of our largest customers and, we let them stay on their existing pricing. I'm, and I said, I'm the softy, next time Colin will take the call and you can get the bad cop. But I, I do think it's, it's shitty to go from, to try to switch it up where they're paying 59 a month to 300 a month.

And some have not complained, but I think they will want, maybe they didn't read your email. and so I, I just kind of, anybody who's kind of barked at that, I've, I've just said, hey, don't worry about it. We'll, we'll keep you on. And by the way, these are all. Customers that have been like super helpful with feedback and beta testing.

So like they're definitely giving value back to us. And I don't know, I'd rather get that five, 600 bucks a year than not. I think that was what they were saying. They're like, we're just going to discontinue using it.

[00:04:13] Colin Keeley: Yeah, it's a, it's a optional add on. so the normal price increases, the per user stuff, only that one guy had really any problems with.

And then the, much more expensive add on that is optional and you don't really have to use totally was where we got pushed on back on.

[00:04:29] Brent Sanders: Yeah. And it, it's really hard for me to, I don't know if we're actually like at our new pricing, we definitely make money on it, but like the old ones, it's hard to say, like we have our junior dev, our apprentice Dom, like he probably spends 10 hours a week, every week on.

Just dealing with app store issues of this one's going to get pulled out or that one's missing compliance information. Like it's actually a lot of work, especially because we're adding all this structure. It was kind of done in a fairly disorganized way. And like, had we re, we, we brought a lot of infrastructure in to make it easier to like to do releases without, having to run it on your machine.

But it's still like a bookkeeping and. Organizational nightmare, like between our support team, keeping track of things and who's got what release and it's, it seems like, Oh, you're just cloning an app, but the maintenance is, has been the real bear. So glad we're, we're finally getting this done. What it will mean to us is what we're going to see our bottom line likely go up.

We'll see some churn, we'll see MRR go up. Hopefully. Yeah.

[00:05:36] Colin Keeley: Fairly substantially. For sure. It's definitely the easiest lever to move like,when you acquire something new or just in, if you own a business for sure, those are the people probably most afraid when it's like most of your net worth is tied up in one business.

[00:05:56] Brent Sanders: I do feel like it's, we gave it a fair amount of time, we added value, we're continuing to like, we're definitely putting a lot into making the product better, being more consistent. So I don't know, I'm excited to finally get that, underway and, and checked off the list. It, it does always feel scary, right?

It's like, it's never a fun conversation, but it does always seem like the healthy thing to do. Happy thing that we do not have like lifers or like app sumo users. We talked about that in some private or prior episodes. Everybody's on a kind of a similar thing. And I think everyone's been paying the older, the legacy customers that are paying the 25 a month.

Like I think they realize since the time they signed up, there's been quite a bit of inflation.

[00:06:37] Colin Keeley: Yeah, for sure. Everyone else is raising prices. It's not that shocking to anyone. I guess other kind of bigger update on the Scout front is when you offer like business management for X or like vertical software generally, I think it's great.

I mean, you could keep adding more customers, but it's also these customers trust you and they're like small business owners and they want you to keep providing them with more services. So we've been getting requests for more of these kind of growth services, and we're finally, breaking down of sorts and, going multi product.

So we're launching a new thing called Maple, which is a fast growing tree, that's how I came up with the name. And it is a, I like, growth agency, basically, for us, to offer to scout initially, and then to offer to more kind of local businesses. so it's a reviews app to get more Google reviews. It's a SEO.

So like SEO audits and getting backlinks and kind of the whole service for you. those are the two we're launching with to start. I think there's talk of like, Google search ads and stuff like that as well. that would be like the three tiers we could offer.

[00:07:37] Brent Sanders: Yeah. Helping our customers make more money.

I mean, I think that's the one thing that we, as I look at these customers trying to understand, okay, what are they paying us every month? And then what are they taking in every month and trying to understand what is our sort of percentage of their, their spend. Right. Like it's, it makes it really easy for us if they, if they're adding new customers and they're growing, it's like great throw it on and we can be more of an engine for them then instead of just being like, Hey, where your bookkeeping and appointment setting and all this other stuff is, had a couple of also, even today had a couple of sort of technical integration things, custom, people wanting the mobile app, but they want it to be a little different.

And, being like, let me pay you like we want to do this. And it's it's very difficult for me to wrap my head around how that would work. But I think there is something to offering sort of, service along with the product. It's just It's not why I got into this, right? I'm coming from service and I'm coming into software.

So I don't have to like be the person, but then again, it's, it can be such an accelerator. So I'm, I think it's worth exploring. I think it's worth, as long as we can add a lot of value, I don't see any, I don't see any downside to it.

[00:08:50] Colin Keeley: Yeah, I have no doubt we could add value. I, I do wonder, if.

Like what the longterm value is, or if you get most of the work done, like up front and they're like, Oh, thank you for putting my business in a position to grow. I'm gonna turn you off at month three because you did such a good job. yeah, yeah, I guess we'll see,

[00:09:08] Brent Sanders: I worked with a prior businesses that worked with like growth agencies and they usually require those, hey, at least a quarter up front.

You gotta, or at least commit to, in order to avoid that if, if it's like taken off and it's a great, we can't. We don't have any more walkers. We can't fulfill any more of this work. So I'm going to turn it off. but that'd be great if we can think about it. The incentives are really well aligned.

We're charging per seat for business grows. They need more walkers. They're going to pay us more than everybody wins. So I think that's the part of it that I really like. Yeah.

[00:09:40] Colin Keeley: so if you have a local business, we're doing this for mostly dog walking and like pet care companies initially, but we're happy to do it.

It works just as well for basically any local business. so reach out. we've looked, so the larger question for us is like, we're the acquisition guys. Why are we starting this? Why didn't we just go by, review software?

[00:09:59] Brent Sanders: I think so. There's a couple of things. One, I think we have looked at review software and be like, there's not a lot here, you could probably just build it.

I think that's one part of, of the businesses that we have looked at. It's been a lot of service. It's been a lot of like, okay, we're buying an agency. That has like some scripts or some like light software. So I haven't looked at, a ton. But I think we've looked at three in total over the last two or three years.

And they've all kind of had these same characteristics where it's like, man, there isn't, what do we, it's not really a software company. So I think that's been the main reason on my end. you're like buying a book of business, which still that makes sense. I mean, we have zero, not zero. We have what, three, four customers now, but.

that's hard to get the ball rolling. That's worth something. Yeah.

[00:10:46] Colin Keeley: I think there's specific things we wanted. We wanted to integrate with Scout, so we'd have to build that anyway. and you looked at all the products. They're all doing from the financials very well. They're growing quickly.

It's definitely necessary for any local business to have these kind of things. but it, yeah, it's just pretty simple operations like blocking and tackling. It just made sense to build it instead of, Dealing with an acquisition, which is its own problems.

[00:11:09] Brent Sanders: Yeah, yeah, this isn't even worth the lawyer fees, frankly.

But, I think that's... It's always, in my mind, it's always good to start... I mean, in my mind, this is almost like not even, like... until you get to 100 or 1000 customers, right? So it's, it's just an infancy kind of side project that is feeding growth of our, companies. I wouldn't call it a portfolio company just yet.

but yeah, I think it does make sense to have sort of a migration during the market, doing what it does. I mean, I've lived through a couple of these now and you see it in every. Every different part of the economy where, you know, the, the people that were builders all of a sudden start becoming GCs and, the people that were, doing more services are, kind of shifting to the, to the market.

And I think it's when cash flow, with interest rates, what they are, cash flow becomes much more appealing. And so, like, I've spent most of my career going like. Heavy on service and then, going to the way other side and it's like I've talked about it before this being like skiing We are kind of going side to side and having a balance where you're skirting to one side and skirting back to the other side and kind of going in between the middle as Time goes by and I do think that there is some element of that to you know navigating Tough economies and being willing to do and able to do both in order to stay alive.

So it's like, yeah, if the fundraising market dries up, you have options. It's not like, hey, we're gonna have to, it's kind of like bootstrapping, which we were talking about in regards to the market to change topics a little bit. We were kind of looking at or talking about a review of the last year and kind of a forecast of the future year, it being October right now.

It's kind of getting cold here, starting to think about, okay, well, what, what's the acquisition condition looking like? So any thoughts on that?

[00:13:03] Colin Keeley: I mean, we're always talking to folks. I talked with a number of good bootstrap companies recently, kind of this business management for X profile. And I think they, I mean, they're profitable, they're growing steadily.

They aren't as influenced by these like current conditions. So they're kind of stuck to like. So generally we pay one to four times ARR, is like roughly any financial buyer will quote that range. and they're kind of stuck to that four times ARR. And so maybe you could get more aggressive on terms. So you give less money up front, maybe more money over time.

But they just, they don't have to sell, right? They could just keep cash flowing and wait until the market comes back and things are priced highly. so unless there's some, personal situation or they really want to retire or something. I think it's going to be hard to get a great deal, for these traditional like bootstrap companies.

So if I were to guess our next, 12, 24, however many months, it's going to be a lot more focused on these venture orphans. so we talked about it last podcast, I think you're seeing more and more companies shut down. many of these, I think you could pick up for basically, paying off the debt and, we talked about the rough deal structure before,

and then right sizing these companies, I think is our path for the next, call it one to two years. Yeah.

[00:14:16] Brent Sanders: Interesting. Cool. I think the, only other topic we're wanting to kind of openly talk about was one of our portfolio companies that we've had for two years now. Automatic. It's a database backups platform.

Has it been two years? I feel like it has almost, no, it was two. It'll be two years in on January. We did it right on new year's or something. It was like. Perfectly done for the end of the year. so we're coming up on a one year point on it and it's just been a flat business and I wanted to kind of share with our audience, like some of the struggles that we had within how we're thinking about it.

So some on the struggle side, it's been, it's been hard to kind of find new customers. They kind of find us, we've done marketing and the marketing ends up, people are trying to do like physical backup. So they're like. And music and stuff. And it's like trying to market that B2B audience isn't super easy.

We're below the enterprise market, which is by design. We don't want to be, we're not an enterprise SAS in backups. We're not snowflake or something like that. but it, we, we've struggled with, we've made some improvements, we've updated the product, we've done this and that. And it kind of begs this question two years in it's like, okay, it's, it's flat, if not a slightly declined, like.

Do we want to allocate? So, recent last couple months, we've built a prototype sort of talking about a studio project, we've built sort of a separate product that instead of doing database backups, it does get hub backup, so it'll back up your GitHub repos, it'll stash it away on a third party storage.

It's, it works just the same way that the database backups works and, you're starting from zero and it's hard to get that momentum going. We can market it to our existing customers. they're not necessarily in the market for that, but they might be interested. They, they know us, but I don't know.

It was something that I, I think as we think about allocating more time and resources to it, it's like, at what point does it make sense to just kind of let it ride? And, do we want to, raise the prices there? Which, by the way,that was probably kind of an interesting lesson learned is like buying something.

within a year of the prices being raised, like we knew kind of going in, it's like, we're not gonna be able to raise prices for a while. So you don't get that easy lever anymore. but yeah, it, we're kind of thinking about what do we do with this thing? Like we put our first pass of our sort of playbook together on it.

We can allocate more to it and do more, but it's like, will that equate a return?

[00:16:47] Colin Keeley: Yeah. I mean, it's a question of like capital and time allocation, right? So we have a number of different companies, a number of different projects. Do we want to allocate a good chunk of our time and money to like continuing to iterate on that and launching more kind of product lines within that company?

Or should we really focus that effort elsewhere and just continue let it kind of putzing around? I don't know. I mean, It probably makes sense if we could just get it to start growing a little bit, it would sell for more money, as we look to exit in a few years or whatever. but yeah, I don't love how much time and money we've spent on it and outcome to date for this one.

[00:17:26] Brent Sanders: Yeah. So it's, it's interesting, like, especially on the tech side of things, it's the noisiest, like it is, there's a ton of infrastructure associated with it naturally. But by the nature of what it is, it's going to be infrastructure oriented. But I mean, the, the alerts coming off of this machine and that machine, and it's, it's like a constant and always, when you're not expecting it.

And so now we've kind of gotten into the rhythm of it to, know the early sites and sounds and when those things need to be addressed. But, Yeah, it kind of, the thing that I think about is like no amount of product investment necessarily. Equates to a better outcome. Like we could rebuild it, do all these things.

And it's like, that's not really going to do anything. I mean, it'll, it'll keep us busy and make it feel like we did something, but it doesn't necessarily mean everybody wants to buy it. And that's the thing I think that is giving me pause around wanted to reinvest in it much more is like, we need to see some sort of like user,activation around it.

And so I was thinking, yeah, we have this, we can push the GitHub backups. to whatever extent, but at the same time, it's, it's like who's We're struggling to kind of the go to market part of things in my mind around like b2b database backups. It's just not I think a lot of that is product led and it's hard to double down on that if we're also not seeing the the The channels working for it

[00:18:53] Colin Keeley: Yeah.

I mean, what's tough is we bought it and our usual playbook is, well, let's test sales and marketing. We'll push that and that. And so I bought a bunch of Google ads, bought, kept air ads, trying to think what other things we tried, but basically nothing was working. SEO content. Yeah. SEO has been the only thing really to work in today.

I really thought Google ads would work cause it's like backup. This specific thing should convert pretty well. but none of it really was. It just was not, has not been successful for us to date. So this is looking more like, the legacy offering is not going great. And it's like, you're trying to launch lifeboats of like launching new little startup product lines and hoping that one of them catches and takes off.

which is not what an acquisition should be necessarily. It's looking a lot more like a startup and a lot less like a, steady, company that just slowly

[00:19:41] Brent Sanders: grows. Yeah. Yeah. I mean, it's funny, like in this space, one of the main competitors was acquired by DigitalOcean, which, it's in my mind, that's like a good and bad thing.

Like it's kind of everybody who's on DigitalOcean of these users, a lot of them are paranoid and they're like, well, I don't want to back up my stuff on the same service that I host my stuff. So it's like, yeah. That has, you would think may have helped slightly, but it's also way easier to set up for DigitalOcean.

So, yeah, it's hard. I don't know. I feel like we've done a lot of user discussions on the, at least on the product and sort of implementation side, and it's hard to get the right size. It's like these agencies that really like to use it. These folks that build a lot of websites. They're not an enterprise offering, and I think to an extent that business is shrinking.

the, with things like Webflow coming out, like these were a lot of companies that were just doing WordPress sites. Not that that's necessarily going away, but, I think some of the stuff that we heard from the prior owner that worked were sponsorships. But those again require allocating much capital to a sponsorship.

And it's like, is it worth it? And so I think that's the calculus that I see is like us looking at this more of an exit, like, well, what's the exit going to be versus, the whole forever. Model like we're, we feel when things are going well, like with scout.

[00:21:06] Colin Keeley: Yeah. And that's fine. I mean, that's, I think reality, you want to hold your best companies forever, the rest of them.

there's probably an exit for most companies in their future at some point. yeah. Anything else you wanted to

[00:21:16] Brent Sanders: cover? No, that's, that's about it. That's what's going on this week.

[00:21:21] Colin Keeley: I got a funny update, from daycare in Austin. so my son's at a new daycare. He's like 10 months old. And if we got a report they asked us, has he been trying to bite you?

He's been trying to bite kids at daycare and we're like, no, he, doesn't have any teeth. So he doesn't really bite. and so what he's been doing, he could crawl now. So he is the second youngest in his class, but one of the biggest or the biggest. So he's quite a big kid. and he could crawl with real pace and the other kids are like walking around.

And so we found out he's actually trying to kiss all the kids in the classroom. He does these open mouth kisses, so he, they're walking around and he's like rapidly crawling after them, trying to kiss everyone.

[00:21:59] Brent Sanders: Oh, get, get used to it, man. That's great. That's like, he's going to get everybody sick, but that's part of daycare.

good. Yeah. Yeah. I was about to say like biting. We definitely deal with it with my daughter, but if he doesn't have any teeth, that that's a kiss. That's for sure. That's, that's just him being sweet.

[00:22:18] Colin Keeley: Yeah, that's quite funny

You know besides that it's a f1 weekend It seems like there's always something going on in Austin F1 is apparently very big with rich people and Europeans and I had not really heard of it before but big thing in Austin this Weekend at least

[00:22:35] Brent Sanders: are you gonna go to the

[00:22:36] Colin Keeley: to the race? I'm not, there's some, like events around, people are in town for it.

So I'm going to like dinners and happy hours. yeah, I don't know. Should I go see the race? I think

[00:22:46] Brent Sanders: it's super expensive and it's loud. I don't know. I think of like the Indy 500, but it's not really F1. I, it's all the rage. I know Dom from our team, he loves it. He's like, I think the, younger generation getting really into motor sports.

So it's, it's really popular now. Yeah.

[00:23:01] Colin Keeley: Weird. I probably won't go this year, but maybe someday I'll check it out.

[00:23:06] Brent Sanders: Cool. Well, that's all that's going on here. Thanks for listening. Awesome. Take

[00:23:10] Colin Keeley: care.

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