Dodgin’ storms in the U.S.A.

Two Sets of Fireworks

As we finished the last of the vanilla ice cream and blueberry cobbler, it began to rain. And not just a light drizzle – a pretty serious summer downpour, even by Florida standards.

We hadn’t seen this one coming on the radar and then it was right on top of us, soaking everything only 30 minutes before we were supposed to take the boat out to the Gulf to watch the fireworks.

What we had here was a classic Florida pop-up shower, which is usually a quick-hitter sort of thing. You don’t see them coming, then you get drenched for a few minutes, then they’re gone.

We had a decision to make: Go out on the boat as planned, or watch the fireworks from the porch? Although there was a pretty dark group of clouds behind us on the horizon, we decided to head out and chance it. Even if we got hit by a couple small pop-up showers, at least we’d get a great view of the fireworks.

As you can see behind my friend Jenn and me, the sky wasn’t too bad as we made our way out. We barely made it out to the Gulf before they blocked the channel, and we went to our spot where we would watch the show that would begin in about 45 minutes.

But then, that dark gray storm began drifting in from the west. And we noticed another storm to the north. We started getting a little nervous: Those weren’t little pop-up storms; they looked pretty nasty.

But our intrepid captain had a plan: “I’ll shoot the gaps!” He told us how he would hop around to avoid this storm, then that one, then pop down to this other gap, then back over and we would be fine.

And then the rain started.

No problem! We would just “shoot the gaps!” So we punched it and got to the first gap. Nice! The sky was actually pretty blue and the rain stopped for a minute.

But then it started up again, so we had to try to find another gap. This time, instead of following the coast, we headed seaward. But the gap we were heading for closed, the rain got heavier and colder, and the sky got darker.

Uh oh. In hindsight, playing Boat Frogger with thunderstorms probably wasn’t the best idea. Hindsight is 20/20, of course.

The ponchos and towels came out, albeit a little late. I was wearing cotton shorts and a t-shirt. There were not enough ponchos. Did I mention the rain was cold?

We spotted another gap and headed that way. This time, we arrived in what felt like a sort of clearing. It was dusk, so the sky above us was dark blue and calm with a few whispy clouds. But this was little solace because we were now surrounded by storms on all sides—there were no more gaps to shoot and it seemed like our present gap was closing even as we arrived.

Justin, who was huddled in a sort of parka fort on the floor of the boat, got out his iPhone 7—they’re water resistant now!—to take a look at the radar and see where our gaps went.

Sure enough, we were in a teenie-tiny gap which was literally surrounded by red storms. This was not good. Red basically means “THIS IS VERY HEAVY RAIN AND WIND! YOU DO NOT WANT TO BE OUT IN THIS STUFF!” But we were out in this stuff. On a boat. In the Gulf. At dusk.

Suddenly, there was a lot of lightning and things went from bad to worse.

I grew up in Florida. Heavy rainstorms happen here all the time. In the summer, they happen pretty much daily. So being stuck in a rainstorm in a boat on the Gulf isn’t like FANTASTIC or anything, but it’s not too far away from what a typical Floridian experiences once every year or so as they make an afternoon run to Publix.

Of course, as a Floridian who grew up with frequent intense rainstorms and hurricanes, I also learned to have a healthy respect for lightning because it will kill you. This lightning was probably 5–10 miles away, which meant we were in striking distance.

Where do I go from “Uh oh.”?

Things got nastier still.

“I think we should go south!”, Justin shouted from his parka fort as he stared at the ever-updating radar. Then he showed us the radar, which showed that things were about to get considerably worse. But maybe there was a gap down south, so we headed south.

As we were heading to our new southern destination, Justin showed us the latest radar. The area we had just evacuated was now PURPLE. This is worse than red. According to Weather Underground, we were experiencing the second-most-intense level of rain they measure. On a boat. In the gulf. At dusk. Plus there was lightning everywhere.

The rain was steady, though less intense than it had been earlier in our ordeal. But now we were literally surrounded on all by sides by dark skies and lightning.

Here’s a video of one of the bigger, more surprising strikes. You can hear our intrepid captain’s concern excitement as he and his dad marvel at Mother Nature’s fireworks as she tried to kill us.

This meant that although we were hopefully headed for a gap, we first had to head directly into a lightning storm. Still, the floorboard-parka-fort command center said to go south, so we went south.

After 10 or 15 minutes of heading into a lightning storm at full throttle, we found the gap the radar had foretold. It was near the shore, which happened to be one of the only stretches of uncolonized beach in the area. It was beautiful and eerie. The clouds had dissipated overhead, so we were in a sort of void, surrounded by lightning storms, next to an empty beach as the sky got darker.

We waited and watched the radar, hoping that no more storms would pop up and that the storm we had escaped would continue moving westward into the Gulf.

After 20 minutes or so, a few small fireworks popped just inland of us—a good sign. The gap we were in began to grow so that we could see several miles up the shore to the original position we had abandoned earlier.

We could see that the people who had stuck it out were getting absolutely hammered by an enormous storm. The sky above them was black, constantly lit by lightning strikes. As bad as our situation had been, theirs may have been worse.

More fireworks began dotting the shoreline to our north, and we consulted the radar to confirm the worst had passed. The red was all to our west, so we began creeping northward along the sleepy shore, dodging the beach’s outstretched piers as they reached for us.

Things still looked pretty bad by the channel where we naively began our journey—dark skies, lightning and rain—but then we saw some bigger fireworks that seemed like they would be part of the big show. Our technicolor lighthouse showed the way, so we pushed the throttle, heading back to our starting point.

When we finally cut the engine a few hundred yards short of the police boats and buoys that cordoned off the splash zone, we got to see not one, but two spectacular fireworks shows: In the foreground, the man-made one we had come to see; in the background, the lightning that had chased us from gap to gap, into the Gulf, then south, and finally back to the shore we followed home.

Two Sets of Fireworks

My 2016 Year In Review: From zero to profitable

University of Florida College of Engineering Interview Preparation Workshop

In September 2015, I quit my job (again) to publish Fearless Salary Negotiation and start bootstrapping a business. So the one-sentence summary for 2015 would’ve been: Write and publish my book.

My one-sentence summary for 2016 is: Build infrastructure to turn the book into a business.

As usual, this is a long post, so here’s a table of contents in case there’s something you want to jump to:

Here we go!

How did I do in 2016?

For 2016, I thought I would just publish the book, build some products to augment the book (video courses), ramp up to enough revenue to cover all my bills and then return my focus to TaskBook. I hoped to do that early in 2016.

If you’ve built a business, you know how silly this plan was, especially considering I was more or less starting from scratch. Yes, I had published a book. But that was it. I had something like 700 people on my mailing list when I launched the book, and somehow I thought I was heading to enough monthly revenue to pay all my bills from digital products early in 2016? Who was going to buy all these products?

On average, I made about half of what I would’ve needed to pay all my bills in 2016. That’s the bad news. The good news is that I finished the year on a five-month stretch of basically paying all my personal and business expenses. So it took me almost a year, but I am paying my bills, and my business is profitable.

Of course, the ultimate goal is to make multiples of my previous day-job salary. But that’s going to take a while, so I need smaller goals in between. The first one was “Pay all my bills”. The next one is “Make a decent living”.

What I now realize is that 2016 was another foundational year. If 2015 was “Write and publish my book.”, then 2016 was: Build infrastructure to turn the book into a business.

Looking ahead to 2017

For 2017 I have a more strategic focus, supported by tactics, to build on the infrastructure I created in 2016.

It feels like this is the difference between working in the business and working on the business. I’m not exactly sure what that means, but I think that’s what’s going on. I’m moving out one level from working in the business—building products, building a web site—to working on it by growing it.

Fewer new products, more new sales

I’ve built a lot of great things in 2016, and now it’s time to grow my business and revenue. Building new products is extremely challenging and time consuming. But now that those things are built, I can reallocate that time to growing my business.

So I don’t plan to create many products in 2017, and will turn my focus to finding my niche and finding the right customers to benefit from the products I have built. I’m sure I’ll build something new, but I’m planning to resist the urge to make make make.

Focus on helping software developers

I think “the right customers” for my business are software developers. I like working with devs and they are generally positioned to gain a lot from my expertise. In many ways 2016 was just a series of experiments with different markets, and every time I worked with devs, or made something specifically for devs, the response was tremendous. For example, this article on How software developers can get a raise without changing jobs has been viewed over 30,000 times so far.

It’s pretty obvious that this is where I should focus, so that’s what I’ll do in 2017.

More traffic (continued)

By the end of 2017, I would like to have 100,000 visits from organic search per month. That’s about 15 times what I’m getting right now. There was a time when this goal would’ve seemed totally unattainable, but I know what I need to do, and I just need to execute.

The problem with this goal is that much of this is out of my control. An algorithm change or something else could wipe me out. The good news is that if I do the right things to drive this number, lots of other numbers will improve. As I’ll talk about in my detailed recap below, organic traffic has been a lagging indicator that I’m doing the right things, and I’m really interested in this stat as a proxy for other things going well. If those things go well and this stat tanks, then so be it.

What’s interesting is I have no idea if this is a stretch goal, or low-hanging fruit. One one hand, 100,000 organic visits per month seems like a huge number. On the other hand, I’ve consistently tripled organic traffic every 60 days for a year. I don’t think that’s sustainable, but I also didn’t think it was sustainable a few months ago and here I am.

If I keep up that pace (again, it sure seems like this is totally unsustainable), I’ll hit 100,000 organic monthly visits in July or August 2017—plenty of time to spare.

Make a decent living

I’m basically breaking even right now—my savings account is no longer shrinking, but it’s also not growing. And I’m living very lean to make that happen. “Make a decent living” would mean replacing about half of my previous day job income, starting to re-grow my savings account, and opening up my personal budget a little bit.

I’m not really swinging for the fences here, but that’s because I’ve learned that this is likely to be a slow, steady grind forward. Hopefully I blow this goal out of the water, but I’m not counting on it. Maybe “Make good money” will be a goal for 2018.

Finally finish my audiobook

I managed to re-record about 70% of my audiobook after learning some tough lessons earlier this year, but then I ran out of steam. I would like to get this project finished, and I’m hoping to get back to it early in 2017. We’ll see.

A detailed 2016 Year In Review

Here’s a look back at what I built in 2016.

Products and services

Most of these things are new things I built in 2016. Plus there’s a TaskBook update for those who are curious.

Video courses

I started the year by building video courses to accompany Fearless Salary Negotiation. I know a lot of people learn visually and need action items and next steps, and I wanted to give them a way to learn and apply my strategies and tactics.

This was the hardest part of 2016 by far. Not only did I have to create all the content (about 400 slides, each one scripted word-for-word), but I had to learn how to record and edit audio, video and screencasts. Meanwhile, my monthly revenue was close to zero and I had to spend about $2,000 on my car.

It took me about 10 weeks of non-stop work, but I got everything done and I’m very happy with the result. The result is over three hours of quality screencasts that augment the book and visually illustrate key concepts so they’re easier to understand and use.

FearlessSalaryNegotiation.com

I started out here on JoshDoody.com. Once I picked a title for my book, I registered FearlessSalaryNegotiation.com and published a few sales pages, but I still kept writing and pointing everything to JoshDoody.com.

In March this year, I realized that Fearless Salary Negotiation was its own brand and that I needed to start treating it that way. So I redesigned the site, moved to a new platform, and started publishing new content there. At the time, FearlessSalaryNegotiation.com had about 10 pages total. Now it has over 150 pages, and I’ve built every single one.

About 60 of those pages are the online version of the book. The rest are a mix of articles, landing pages, and sales pages.

Coaching

I’ve been coaching people since I started writing my book because I needed to know exactly what was happening in interviews, salary negotiations, and raise and promotion discussions. At first I didn’t charge anything and I worked with friends and family, then friends of friends. I did that for over a year.

Then I got a call from a friend who said, “I have a big job opportunity and I don’t want to mess up this negotiation. What’s your consulting rate?” I…didn’t have a rate, but I knew she was a freelancer, so I said, “Whatever your rate is.” She charged $75 an hour, so that’s what I charged. Then another friend reached out and since my first client didn’t flinch, I charged $120 an hour. Again, no hesitation, so I knew I needed to raise my rate again.

Fortunately, I went to BaconBiz Conf during this $120/hr engagement, and I talked to my pals Josh Kaufman and Jim Gay. I was pretty proud of myself for getting up to $120 an hour and planning to “Charge more!”, but they had other ideas:

“Why are you charging hourly?”

After a 30-minute conversation, I was planning to charge $1,500 for a fixed-fee engagement with a money-back guarantee. I would promise to increase my clients’ base salary by at least $10,000, so this would be a slam dunk ROI calculation.

Looking back, I’m not sure I actually believed I could find clients who would pay me $1,500 to coach them. (This was classic Imposter Syndrome at work.) Sure, I had made people tens of thousands of dollars. Sure, I knew what I was doing and my previous clients (paid and pro bono) had loved working with me. But would strangers really pay me $1,500 to help them bump their salary by $10,000?

You bet they would! But they didn’t much care about the $10,000 promise and I think it actually worked against me early on. $10,000 is a lot of money to some people, but it’s not much money to other people. For those other people, a $10,000 promise just wasn’t compelling (if you’re making $150,000 a year and I promise to help you get to $160,000…that’s not an exceptional jump for you). So I dropped the $10k promise and stuck with the money-back guarantee.

Since then, I’ve worked with folks negotiating at Google, Amazon, Tesla, Samsung, Verizon, and other companies you’ve heard of. And I’ve raised my rate to $2,000 with a plan to raise it again soon.

I was obviously nervous about offering a money-back guarantee, so I mitigate this risk by holding the money aside until my client tells me they’re satisfied. But so far, none of my clients have asked for a refund. (I’m sure this will happen eventually—it’s just a part of doing business. But it’s nice to have a perfect record in 2016.)

My coaching offering has been a huge boon to my business this year. About one-third of my revenue was from coaching.

The Interview Cheat Sheet

Initially, I made The Interview Cheat Sheet for my coaching clients. I found that I always gave them the same homework before their job interviews, so I figured I would make a nice cheat sheet for them. I hadn’t launched any tiny products, so this was a good chance to try that.

It only made a few hundred dollars, but that was just gravy since I made it for my coaching clients anyway. And now I include it with all my eBook and video course bundles as well.

Get Your Next Raise

Any time someone buys Fearless Salary Negotiation, I ask them “Are you negotiating an offer for a new job or looking to increase your salary at your current job?” The responses are pretty evenly split.

Then I ask some followup questions to see where they might be stuck. I found that I had a really good offering for people who were stuck on interviewing and negotiating and wanted more help from me, but I didn’t have much to offer for those who were hoping for a raise.

So I built Get Your Next Raise. It’s a pretty unique self-paced and guided course that walks students through step-by-step process to ask for a raise while I get them feedback along the way. I launched it at the end of November and I plan to promote it heavily in 2017.

This is also the first product I have built by working backwards from the specific need I saw to a solution (the course) to a free offering that offers value and helps potential students determine if the course is right for them.

Shutting down TaskBook

I’ve decided to focus 100% of my time and energy on growing my business around Fearless Salary Negotiation, which means I’m sunsetting TaskBook in 2017. This is tough because I still have people reaching out who say, “Why can’t I sign up for TaskBook?”, and I know it would help them. But I simply don’t have the resources to grow two businesses.

There’s an alternate timeline where my first big project is Fearless Salary Negotiation, and it fizzles out because I don’t know how to sell or market. Then I take what I learned and build TaskBook, which takes off like a rocket. But instead, I started with a SaaS (pro tip: Don’t do this!), didn’t know how to find customers, and got distracted by a shiny new thing, which is growing into a business.

Stats!

I mentioned this was a foundational year, and I think that will show through in this section. Here are my high-level stats from 2016.

My email list

A big metric for businesses like mine is “How many subscribers do you have on your list?”

  • December 2015: ~700
  • December 2016: ~2,500

That’s a decent growth rate considering I haven’t done any meaningful paid acquisition (Facebook ads, etc.). One thing I need to work on is learning more about what folks need when they join my list or download a free guide from me. And I need to provide more value and build a better connection with everyone on my list.

In September, switched to a new Email Service Provider (ESP) called Drip. ConvertKit was great for getting from zero to almost 2,000 subscribers. But as I tried to do more with my list, engage more effectively, learn about people, I kept bumping into limitations. Drip seemed like the best way to get to the next level, so I switched. To ConvertKit’s credit, many of the things that I left for are starting to show up in their product, so it seems I was just a few months ahead of them.

Traffic

After BaconBiz Conf, I spent an extra day in Philly. I decided to walk to a little coffee shop and found myself crashing a post-conference work session attended by many of the conference’s speakers (many of whom are already my friends). Not one to let a good opportunity go to waste, I coaxed a little advice from the group (this was not difficult), and the main message was:

You’re doing the right things, you just need to do more of them and get more traffic.

At the time, I really didn’t know what that meant, but I started doing things I thought would help. I was already doing a podcast tour, inspired by Kai Davis among others, and had begun looking for opportunities to write guest blog posts. (See a summary of my podcast appearances and guest posts here.)

I also began writing and promoting more content at FearlessSalaryNegotiation.com so I would have more content to point people to when they asked questions, and so Google would have a greater surface area of things to find and suggest for search queries.

My focus has been on Organic traffic (when people Google things and click through to find the answer) because I think that’s a lagging indicator of all other types of traffic. If I get lots of traction with my content, podcasts, guest posts, social media, etc., that will eventually translate into Organic traffic.

Here’s my 2016 weekly organic traffic:

2016 weekly organic traffic on FearlessSalaryNegotiation.com

As you can see, it’s growing pretty steadily and quickly. I have basically tripled traffic every 60 days this year, so I went from almost zero traffic in January to almost 2,000 visits a week now.

Book sales

I’ve sold almost 1,200 copies of Fearless Salary Negotiation so far. Most of those sales were on Amazon, which is why I launched on Amazon. One cool thing is that I have steadily raised my price and sales continue to improve. So I’m making more sales and getting more revenue per sale. This has been a nice surprise.

One concern I had about launching and selling on Amazon was “You don’t know who your customers are!” (this is a common thing I hear in the self-publishing community). This is partially true—I technically don’t know who buys my book because Amazon doesn’t tell me.

But! 10–15% of Amazon buyers subscribe to my email list because I point back to my site, where I offer free worksheets and email templates to accompany the book. Some of those folks have eventually become coaching clients, so I see the Amazon version of my book as a sort of combo product/marketing tool/calling card.

Coaching

I worked with about a dozen different clients this year. Not bad considering I didn’t launch my coaching offering until mid-year. I’ve intentionally grown this part of the business slowly because I want to make sure my clients get great value for the price, and because I wanted to iterate on the offering as I got to know more clients.

I’ve found that the folks who benefit the most from working with me are experienced software developers moving to larger companies like Amazon, Google, and Tesla, so that’s who I’ve been working with lately.

Talks

University of Florida College of Engineering

I had a chance to do about 10 talks this year, and they were a lot of fun. As I write this, I realize that all but one of those talks were to engineers or software developers—another sign that focusing my efforts on helping software developers is a good idea.

This talk on salary negotiation for software developers for Orlando Devs and The Iron Yard, Orlando was my first of the year and it has almost 7,000 views on YouTube. I also gave several talks at a local code school called Gainesville Dev Academy, where they buy a copy of my paperback for every student.

The really fun thing is that talks are easy for me to do—I’m extremely comfortable with public speaking. And they give me a chance to meet developers and see what they’re struggling with.

Podcasts, webinars, quotes, and guest posts

Here’s a one-page summary of my podcast appearances, webinars, quotes, and guest posts.

I was on more than 20 podcasts this year. Most of them were software developer podcasts (yes yes, another checkmark for “focus on helping software developers”), and the response was fantastic.

I think the highlight for me was talking with my pal Patrick McKenzie on his Kalzumeus podcast. Patrick’s detailed blog post Salary Negotiation: Make More Money, Be More Valued was an early inspiration for me to learn more about salary negotiation, try it for myself, and eventually write Fearless Salary Negotiation.

I also participated in three or four webinars, which was great practice. I’m extremely comfortable in the podcast format (probably more comfortable than public speaking), but not as comfortable with webinars where I sometimes need to be on camera, and where the audience is live but invisible.

I did four guest posts and was quoted in a Forbes.com article, so that’s pretty nifty.

Revenue

I’ve decided not to share my revenue numbers publicly because there are some drawbacks and I can’t think of any real benefits.

That said, I’m basically paying all of my personal and business expenses each month. That’s a big deal for me because it means I’m not spending my savings anymore. Hopefully in 2017 I can replenish the savings I burned through earlier this year.

Wrapping up 2016

It was a good year. It started slow and stressful, but things turned around mid-year and most of the important graphs are moving up and to the right.

I am learning a lot about building and running a business—this experience is invaluable. I’ve spent the past several years getting to know some very smart people, and their guidance has helped me keep focused on the right things and ignore the things that don’t matter.

I’m really looking forward to seeing how this business grows in 2017.

Business lessons learned recording my audiobook

Home studio

I’ve been recording the Fearless Salary Negotiation audiobook and boy-oh-boy is it a lot of work! Some of it has been a lot of fun, and some has been miserable. Along the way, I’ve made lots of mistakes and learned several good business lessons. I thought I should share a few of them here.

Not everything is about ROI

The standard way to think about business stuff is “What’s the ROI on that?” And I think that’s fine most of the time. But sometimes ROI just isn’t as important as other factors.

In my case, I have no idea what the ROI on the Fearless Salary Negotiation audiobook will be. I’m recording it because I don’t feel like it’s complete without an audiobook version. Audiobooks are very popular—I’ve been listening to them more and more—and a lot of people primarily read books that way. I want to make sure those people can benefit from Fearless Salary Negotiation as well.

Beyond the decision to even do an audiobook, there are lots of ROI-type calculations that I’m ignoring. For example, I’m not a professional voiceover actor, but I do know a few. And it would be easy to reach out, negotiate a rate and have them read my book.

But I’m doing it myself because I think it’s better for my readers to hear me read my book in my own amateur voice.

I need to trust my gut

I’ve been planning to record my audiobook for many months now. I finally had a window on my calendar, so I found a local studio online and booked some time. When I talked to the audio engineer, he told me that his studio space had been acquired by a bigger firm, but that he kept the equipment and moved it to his home studio.

This made me a little nervous, but I know a lot of home studio setups are great for audiobooks, so I didn’t think much of it.

There were several red flags when I got to the studio on the first day. It was a small house with three dogs and tile floors. The studio itself had no sound proofing/dampening, and my ears told me right away that the audio in the headphones was “wet” (echo-y).

But I figured I was already there, and I had been planning this for months, and the audio engineer claimed he knew how to get great results with audiobooks, so I just went with it.

Fast forward to the following evening. We finally finished recording the book and I asked for the files so I could review them over the weekend.

The audio was…not great. I sent it to a couple of friends and said, “This sounds pretty bad to me. Can it be turned into an audiobook I would be proud to sell?” The answer was universally “No. You can’t use this.” I had wasted 14 hours over two days.

The thing is I think I knew that pretty early on, but I didn’t trust my instincts. I should’ve stopped after the first day.

I made several mistakes

Here’s a list of mistakes I made, ordered so the ones that could’ve saved me the most time and money are first:

  1. I didn’t ask for a sample of his previous work. If I had heard other audio from that studio, I probably would’ve just kept looking for something better.
  2. I immediately recognized the studio wasn’t set up to do voiceover work (tile floors, no sound dampening, dogs walking around with their nails clickity-clacking everywhere). I probably should’ve just parted ways as soon as I saw the studio.
  3. I didn’t ask for a sample of our work product after the first day. This could’ve saved me eight or nine hours of studio time if I had skipped the second day.
  4. The morning of the second day, I had concerns and thought about cancelling the session. I should’ve gone with my instincts. I even texted a friend about the situation, and he agreed. But I went in for the second day anyway.
  5. I still could’ve left a few hours into the second day. As we began the second day in the studio, I was thinking, “This isn’t going to be usable. I should just leave and save this time and money.” I should’ve trusted my gut.

So I made some pretty big mistakes. But! I did avoid one very common mistake that would’ve cost me a lot more time and money…

Fighting the Sunk Cost Fallacy

It’s hard to describe how exhausting this whole process was, but I was totally spent. I literally stood in a room, held an iPad and read aloud for about 14 hours over two days.

The second studio day was a Friday. So that meant I had the weekend to listen to the audio files we had produced, send them to some friends, and determine if they were worth editing or not.

I wanted to believe that those two days and hundreds of dollars weren’t totally wasted. But when I sent samples to my friends, I said, “Do not sugar coat this. If these files are unusable, tell me. I need to know and I don’t want to produce a bad product.” It was all unusable. I had literally wasted hundreds of dollars and two full days for nothing. I would have to start over.

But this is actually a great result, and I finally went with my gut and saved a lot of time and money. The editing and mastering process would take even longer (more studio hours) than the recording process, and would cost hundreds more dollars. Even worse, the result would’ve been a terrible audiobook. So by finally trusting my gut and getting help from my friends, I saved a lot of time and money.

This was the hardest decision of all because of the sunk cost fallacy: I didn’t want to waste all that hard work and all those hours. I wanted to get something useful from all that effort. And this happens constantly in business. It’s often called “Throwing good money after bad” or “Chasing your losses”. In my case, I didn’t succumb to the sunk cost fallacy and I saved a lot of time and money.

Starting over from scratch

The good news is I had seen the recording process in action, and heard the (bad) results. And I knew I could do better with my own equipment. So I set up a home studio in my hallway using equipment I already had, and started over from scratch.

It’s not much, but it doesn’t take much. And I’m able to get “dry” (no echo) audio, which is ideal for audiobook narration. I’ve already started editing some of the early chapters and it sounds much better. I’m proud of the product I’m creating and that’s not something that shows up in ROI calculations.

I hope to release the audiobook in the next few weeks, and I’m glad I decided to put the extra work in to make sure it’s a product I’m proud of.

I have a cool new app idea! How do I get started building it?

Why I’m writing this

“I have a cool new idea for an app! How do I get started building it?” I get some form of this question about once a month. It recently came up again over lunch with a friend who owns a small, successful business. “I have an app that we’ve been using at my business for a couple years. I think it could really be valuable to other businesses like mine, so I’ve been talking to a couple of my friends, and I think we’re going to go in together and build the app out so we can sell it as a service to other businesses.”

As we talked, I heard some really encouraging things and some red flags.

Encouraging

  • A few other business owners have told him they think it’s a good idea and they would be interested in learning more.
  • He already has a prototype that’s a functioning web app, so he wouldn’t be starting from scratch.
  • The app saves him a lot of money every month by almost eliminating the time needed for one aspect of his business’s customer service; it also brings in a little revenue of its own.
  • He has direct access to a good-sized target market. His particular business is very well respected in his niche, and those who respect him could benefit from this product and would take his call if he wanted to ask them to try it.

Red flags

  • He wants to bring a couple of technical people in as co-founders to start a company and build the app.
  • His background is in sales and marketing, but he has little technical expertise (someone else built the current app with his direction and input).
  • He’s already pretty busy running his current business day to day. He also owns another totally different business on the side.

After lunch, I told him I would think about his idea and email him with my thoughts. I realized I had a lot more to say about his idea and I put together a long email, hoping to help him avoid some possible pitfalls and set him up with an actionable plan in case he moves forward with his idea.

Then I realized this could really apply more generally to the question in the title of this piece. So I’m posting it here and I’ll refer future requests here as a starting point.

Here’s the email, slightly edited. I swapped out the specific function of the app for a generic term “uses” or “instances” so I don’t give too much information about my friend’s business or his app. I also edited for brevity in some spots.

The email

DISCLAIMER: I’m not a lawyer or an expert on building apps or starting businesses, or co-founding, or equity, or anything like that. If you need an expert or a lawyer, you should go find one 🙂

Howdy!

I looked at the app on your site, and it’s pretty cool! I’m happy to talk about this over lunch some time, but here are my general thoughts. Everything I’m saying here is from the perspective of how to build and grow a business to give yourself a good shot at success. I’m not really looking at it from the perspective of someone who just wants a challenge, or something to do with friends, or is looking for a new project.

Overall bottom line

  1. Get a rough idea of who you’re going to sell to and what you’re going to charge.
  2. Go find potential customers and see if they’re really interested. Get a commitment from them that they would pay for your product at a certain price-point. You may also want to put up a “landing page” where other potential customers can sign up for a mailing list and/or pre-order.
  3. If there’s real interest then start building it either by outsourcing or with a single technical co-founder with experience in this area.

Revenue model

Bottom line: I recommend charging monthly using a tiered model based on number of times they’ll use the app. I don’t know where the prices should land (I’m not sure how much value the app adds – more on how to figure that out below), but something like: “Up to 50 uses a month for $149/month; Up to 100 uses a month for $249; Up to 200 uses a month for $399; Up to 1,000 uses a month for $999; Call for Enterprise pricing”.

You should start thinking about this now. You may change it later, but it’s important to know how this app will actually make you money. Are you just charging customers a monthly fee to use it? If so, does every customer pay the same amount? How do you differentiate between “big” and “small” customers? Or maybe you just take a cut of premium upgrade fees and give the app to customers for free.

How to determine price: The easiest way to do this is just to figure out the value-add for a customer and price accordingly. You mentioned that you used to spend a lot of time every day for this aspect of your customer service. You could do a rough guess on how much time you save (man hours) per month with the app, then figure out what that translates into on a per-use basis for you.

Example: “We complete about 100 instances a month. My employees probably spent about 40 hours a month performing this function manually, and my cost of payroll is about $12 an hour. I don’t save all of that time because the app doesn’t replace all of the manual work, so let’s call it $400 a month in savings.” But this app also increases top line revenue, so you could add, “And we make about $100 a month from upgrades. So we’ll save total value is about $500 per month at my store.” But you have to add value – not break even – for your customers, so let’s cut the cost to the customer in half: $250/month for 100 uses.

This is just a ballpark number that you would use to build other tiers around so you have a pricing plan to show to potential customers. The reason this matters is that the next thing you need to do is…

Marketing and Customer Development

Bottom line: You should find customers before you invest the time and resources in building the product. You want to go out and find a few customers who have the pain point you’re addressing, and who are willing to pay for your solution. If possible, you want some kind of commitment that they’ll be a customer when you launch. I’d say you want at least five customers who say, “Yes, I have this need and I would be willing to pay that amount for a product that addresses this need.”

If you’re serious about building this app, you should start with Marketing and Customer Development. You should start by going out and finding customers who will pay for your product. From what you told me at lunch, this could be easy – but you won’t really know if it’s a viable (meaning – profit-generating with customers ready to buy) business idea until you have commitments from customers to give you money to use the product.

So you’ll call up some of your contacts in your own niche and ask them if you can get their feedback on a product idea you’ve been thinking of bringing to market. Show them a demo or some mockups to get their input and gauge their interest. Then ask them if they’re a customer at their estimated price-point, and ask if you can keep in touch with them via email as you move forward with the project. You want to leave the meeting with two things: 1. Some kind of commitment that they’re a customer around the price you anticipate charging them (this could range from a verbal commitment to a pre-order); 2. Some way to keep in touch with them (email, phone, etc.).

If you’re able to get five commitments or so, you’ve got a good thing going and you should think about developing the app. But first, you might want to set up a “landing page” – a one-page website with a little brochure about what you’re building, and where potential customers can sign up for a mailing list to keep up with your progress. You could market this page and continue soliciting signups as you build the app so that you have a nice mailing list to reach out to when you are ready to launch (or do a Beta or whatever). Marketing will be an ongoing activity as you develop the app, and it’s best to start early.

Co-founders

Bottom line: In your case, I would recommend either 0 or 1 co-founders. Since your available time to work on this is limited, it seems like you’d be best off getting one technical co-founder to manage app development (including outsourcing if you want to save time by spending more money).

Now I’m finally getting to co-founders! You’ve gotten to this step because you’ve figured out a potential revenue model for your product, and you’ve found a number of potential customers who said they would buy your product at some price. So it’s time to figure out how to bring this to market given your constraints. In your case, it seems that your constraints are primarily your available time to invest in building another business, and technical expertise. (Your strengths are that you are very comfortable running a business, and you’re an experienced Sales and Marketing guy.)

I think you should have a really, really strong business reason for bringing on co-founders. For example, if I decided to start a business tomorrow, I would be capable of owning the technical aspects of the business (technology, writing code, testing, etc.), and a lot of the business operations (cash flow, whether to hire, etc.), but I am pretty green when it comes to Marketing. If I were bringing in a co-founder, I think my blindspot is Sales and Marketing, so I would try to find someone who is very strong there. But I wouldn’t go after multiple people with that skillset – just one.

Be careful bringing on co-founders – they’re very expensive and difficult to get rid of if they don’t work out. If you give someone 25% and they work a few months and then get bored and moved to Indiana, they’re still a co-founder with 25% and that would be really unfortunate. [Digression, which I didn’t include in the email itself: You can do some smart things around vesting periods that mitigate this, but their ownership stake is only a small part as they’ll also be influencing the actual operations of the business, possibly slowing it down or derailing it, or just generally getting in the way.]

It sounds like you had a good idea, and talked to some friends, and they thought it was a good idea, so you’re all thinking of co-founding together. But you already have the idea and you had a prototype built. And, if you’ve gone through this progression the way I wrote it, you’ve already gone out yourself and found people willing to pay for your product. What you need now is technical expertise. I think it’s reasonable to find a technical co-founder, but I don’t think it’s necessary (or even useful) to have multiple technical co-founders. The difficulty in managing the business increases exponentially with more co-founders–the more you have, the harder it is to make decisions, and the more likely someone will just free-ride on your work.

Things I would look for in a technical co-founder for your idea (these aren’t all mandatory)

  • Has some level of business experience – after all, you’re co-founding a business. You want your partner(s) to know something about what that means.
  • Experience building web applications.
  • Experience with billing and payment integration into applications (you’ll be taking money and he’ll be responsible for making the app do that).
  • Experience with multi-tenant web applications (“multi-tenant” just means that the app can be used independently by multiple businesses without them seeing what the other businesses are doing).
  • Experience managing technical resources. Odds are you’ll need to outsource some of the work (although a really strong technical founder could at least build the prototype and Minimum Viable Product).

You could also do this without a technical co-founder, but it would be tough. What you would need to do is find a web app developer who could build the app as a contractor or something like that. This could be problematic for a few reasons:

  1. It might be tough for you to manage a contractor given that you aren’t experienced with app development. It’s not impossible that this could work (after all, you have a prototype), but it could be tough.
  2. Proficient web app developers are in very high demand right now, and could be both difficult to find and expensive to hire.
  3. If you want to move quickly at all, it would probably be better if your technical lead was really invested in making this product work and bringing it to market. Contractors charge by the hour and would be pretty happy to just plod along at a reasonable rate. A co-founder with equity would want to start generating revenue quickly in order to get paid.

I’m not trying to discourage you here – I know it may seem that way. I’m trying to help you maximize your chances of succeeding without running yourself into the ground. I’ve heard this methodology described over and over again, and I wish I had approached TaskBook this way.

Some resources you may find helpful

  • Most of the “get customers and signups first” stuff I am talking about is based on Nathan Barry’s book, Authority.
  • Startup For The Rest of Us is an excellent podcast on startups. I’ve listened to about 60 episodes and I’m moving through them as quickly as possible. You could scan the list of episode names for relevant topics (co-founders, customer development, etc.).
  • Amy Hoy’s blog is a great resource for bootstrappers. In particular, How do you create a product people want to buy? might be helpful to you right now.
  • Product People is a really great interview podcast where Justin Jackson asks entrepreneurs about their products and businesses. It’s a really informative, and really easy listen.

Slowing recovery by maintaining the status quo

The monthly jobs report dropped last Friday, and shows a sluggish, but steady recovery. I think this chart is pretty interesting:

EmployRecAlignJune2013

HT @justinwolfers for sharing that pic on Twitter, and obviously Calculated RISK Blog for posting the original.

Note how slow this recovery is, but also note that recoveries have been slowing over time – the U-shaped curves are getting more and more pronounced (less V-like) over time. This is true for the past four slumps (1981, 1990, 2001, 2007). It seems the most unique thing about the current recession isn’t just the time-to-recover, but the depth of the recession. This (admittedly very speculative) post is about the duration (and the trend to lengthening the duration in successive recessions), not the depth.

My purely qualitative theory is this: Government and industry are both mostly interested in maintaining the status quo. So, when something happens (an economic jolt, disruption, globalization) that threatens the status quo, we often must choose between letting the change happen, and trying to protect the status quo. The issue is that we often protect the status quo at the expense of economic efficiency, and this happens aggressively during recessions.

Too Big To Fail (TBTF) was a great example of this. I don’t think anyone thought, “It’s long-run economically efficient to bail these banks and creditors out.” Instead, the rhetoric was, “If we let these banks fail, our economy will crumble and who knows how long it will take to recover.” We knowingly made inefficient decisions to protect the current status quo – we weren’t willing to accept the pain of an economic correction that severe.

On his EconTalk podcast (an excellent, excellent podcast that I highly recommend), Russ Roberts frequently refers to the “Bootleggers and Baptists Theory“. Basically, bad stuff can happen when apparently-opposed interests pursue a common interest that benefits them both at the expense of society. In this case, the bootleggers were the banks, and the baptists were the politicians who (ostensibly) believed America couldn’t handle the economic fallout of allowing the banks to fail. The result was TBTF, and hundreds of billions in bailouts to banks who had already demonstrated that they were not acting in an economically efficient manner. It seems obvious to me that the banks should have failed if we’re interested in economic efficiency. They obviously didn’t operate efficiently, and the market tried to destroy them when the housing bubble popped. But rather than allow them to fail, we propped them up with tax payer dollars.

In general, we see this with rhetoric about how so and so industry is crucial to American interests, and we must protect it. The results are subsidies, favorable regulations, licensing regimes and the like. These are all essentially government and industry working together to maintain economic inefficiency for the benefit of the few, at the expense of the masses. Basically, we allocate capital (human or fiscal) to maintain the status quo rather than allowing the economy to adjust on the fly and reallocate capital efficiently. This is “sustainable” when everything is rosy – there’s all kinds of money available to maintain the inefficiency when the economy is booming. But as soon as we experience a bust, the money dries up and we can’t maintain the inefficiency because there simply isn’t enough capital.

My theory is that the more we support inefficiency is good times, the longer it will take the economy to adjust in bad times because it’s so difficult to unwind the inefficiency. The beneficiaries of the inefficiency are loathe to release the control they gain, and that control must be slowly pried away from them by economic forces over time. The more control they have, the harder it is to pry away from them. TBTF demonstrates this well: It was actually a last-ditch effort to maintain the status quo after the housing bubble burst. The “so and so industry” of the 90s and aughts was the housing industry. We put all our eggs in that basket, promoted it, lobbied for it, subsidized it, did everything we could to bolster it, ultimately misallocating a substantial amount of capital to that particular industry. When the market couldn’t bear the weight of the inefficiency, it collapsed, and the government stepped in with TBTF (a collaboration of government and industry) to try to maintain the status quo. 1 2

This all reminds me of one of my favorite E.A. Poe short stories – The Facts in the Case of M. Valdemar. WARNING: SPOILERS LIE AHEAD!

The story is basically about a sick man (M. Valdemar) who is hypnotized and put into a sort of suspended state to prevent him from dying. He’s very ill and would soon die otherwise, but a “specialist” thinks he can prevent M. Valdemar from dying by putting him in a sort of hypnotic state. It works, and M. Valdemar is held there in suspended animation for a long time (like seven months). Eventually, he starts mumbling and moaning, and his caretakers/experimenters are worried something isn’t right. They decide to ask him what’s wrong. That’s where I’m picking up with the story:

“M. Valdemar, can you explain to us what are your feelings or wishes now?”


There was an instant return of the hectic circles on the cheeks; the tongue quivered, or rather rolled violently in the mouth (although the jaws and lips remained rigid as before;) and at length the same hideous voice which I have already described, broke forth:


“For God’s sake! — quick! — quick! — put me to sleep — or, quick! — waken me! — quick! — I say to you that I am dead! “


I was thoroughly unnerved, and for an instant remained undecided what to do. At first I made an endeavor to re-compose the patient; but, failing in this through total abeyance of the will, I retraced my steps and as earnestly struggled to awaken him. In this attempt I soon saw that I should be successful — or at least I soon fancied that my success would be complete — and I am sure that all in the room were prepared to see the patient awaken.


For what really occurred, however, it is quite impossible that any human being could have been prepared.


As I rapidly made the mesmeric passes, amid ejaculations of “dead! dead!” absolutely bursting from the tongue and not from the lips of the sufferer, his whole frame at once — within the space of a single minute, or even less, shrunk — crumbled — absolutely rotted away beneath my hands. Upon the bed, before that whole company, there lay a nearly liquid mass of loathsome — of detestable putrescence.


Although they found a way to maintain the status quo, suspending his death – an inefficient decision since they weren’t doing anything to actually address the causes of his illness – his body was primed to deteriorate just as it would’ve without the intervention. They managed to delay the inevitable for seven months, but once they woke him, efficiency was restored and he turned to a “nearly liquid mass of loathsome — of detestable putrescence.” At least M. Valdemar’s body was eventually allowed to correct itself very quickly. This doesn’t quite match my analogy to U.S. industry — we would’ve brought specialists, lobbyist, regulators, politicians bedside to try to slow the decay as much as possible, even after he awoke. We would’ve moved him into a freezer, or given him medicine, or whatever might work to preserve the status quo as long as possible.

So many of our economic interventions – supported by industry and politicians alike – are just like this hypnosis. They postpone the inevitable, but are ultimately bad for the economy as a whole. We hold on to economically inefficient regimes to maintain the status quo, but we’re only postponing the inevitable and misallocating resources in the interim.

FOOTNOTES:

Make Better Hashtags With Camel Case

There you are, casually perusing Twitter, when all of a sudden you’re forced to decode a jumble of letters–you’ve run into a garbled hashtag. “I don’t even like word jumbles!”, you shout at your poor, startled roommate, who fell asleep on the couch watching Mythbusters re-runs again.

You didn’t sign up for this, right? You’re only messing around online because you’re procrastinating on a paper that’s due in 12 hours–you’re trying to avoid thinking hard about words and letters and English. No, it’s not fair that the Internet gave you this hashtag to decode, but there’s nothing you can do about it now. You just have to soldier on, decode that sucker, feel that twinge of disappointment when the effort isn’t worth it, and move on to the next Tweet.

But you can do something to help future generations: start using Camel Case for your hashtags, and maybe the change you make in the world will boomerang and make your life better in the future. I took to Twitter on Valentine’s Day to try and get the word out:

Camel Case is a way to write human-readable, multi-word strings sans spaces and special characters. Basically, you capitalize the first letter of each new word in the string, so you can see the individual words at a glance. It’s been around for a long time in computer programming and chemistry, whose taxonomies involve long, continuous strings of words and individual characters. Most user-facing applications and interfaces don’t need Camel Case because they’re usually pretty comfortable with spaces–they’re designed to be human-facing, human-readable interfaces–but you may have seen Camel Case in online usernames (“FrankTheTank”) and a few other places.

Aside from usernames, the most common user-facing, non-spaces, multi-word user interface element is probably the hashtag. But for some reason, people haven’t adopted Camel Case for their hashtags. The result is that hashtags are as much of a nuisance as a tool. But they don’t have to be! Here are some examples of hashtags with and without Camel Case:

nocamelcase

  • #followfriday
  • #justsayin
  • #nofilter
  • #happybirthdayjosh

WithCamelCase 1

  • #FollowFriday
  • #JustSayin
  • #NoFilter
  • #HappyBirthdayJosh

See how much easier it is to read the Camel Case hashtags? The Camel Case hashtags are still clumped up, but at least we immediately know where their words begin and end, making it a lot easier for us to process and decode them.

So, do yourself and everyone else a favor and use Camel Case for your hashtags. Your followers will thank you.

FOOTNOTES:

A Suggestion for Planet Money: Investigate why the healthcare market isn’t competitive

Planet Money podcast: Please consider a second part for “Episode 439: The Mysterious Power Of A Hospital Bill”

I’ve regularly listened to Planet Money for a few years now. I’ve occasionally had qualms with an episode, but it’s a great podcast, and I’ve learned a lot from it. This Tuesday’s episode was about healthcare costs, and it focused on Steven Brill’s ideas (Brill just wrote a whopper of a cover story for Time: “Bitter Pill: Why Medical Bills are Killing Us“).

You should listen to the podcast to get the full flavor of the conversation. But the gist is that costs are high because insurers lack bargaining power. The silver lining is that Medicare actually pushes costs down because the program has so much bargaining power. Brill suggests we lower the age for Medicare so that costs will come down.

Near the end of the podcast, they acknowledge that there may be an alternate way to push costs down: competitive markets. But they quickly brush this aside after about a minute with, “Obviously we’re not gonna’ settle this debate right here.” Then they close the show. While I understand the time constraints of the podcast, I’m concerned that what they really mean is they aren’t going to try to settle the debate at all. I hope they revisit the idea that competitive markets could help bring costs down, if only healthcare were a competitive market.

“Healthcare is fundamentally different”

Here’s their reasoning for why this just wouldn’t work: Around 16:00 into the 18:00 podcast, they say “…healthcare is fundamentally different. If you have chest pains, you’re not gonna’ like get on the Internet and start Googling ‘what hospital in my neighborhood has the best price for heart attack treatment’, right?. You’re gonna’ call 911, and the ambulance is gonna’ come and get you and it’s going to take you wherever it takes you. So [Steven Brill] argues that the model is not really a sensible model to use for healthcare.”

This just seems like such a weak argument to me. I’m not going to settle the debate either, but I’d like to at least throw out some ideas, and point out how shallow this example is.

How much healthcare spending is on traumatic life-and-death care?

First of all, I’d be curious how much of our healthcare spending goes to this type of suddenly-traumatic and life-threatening situation. My guess is that the vast majority of “healthcare spending” happens in a planned, calculated way. People find out they’re sick, they get a first, second, third opinion. They decide on their course of treatment, and they sign up to receive that treatment at a hospital. There’s a lot of room for regular old competitive markets here. Nobody’s being whisked anywhere in an ambulance. The real question is why healthcare markets aren’t competitive in these planned-care situations.

But let’s look at this heart attack example since it seems to be the most extreme. Someone suddenly finds himself very ill, nearing death, and must seek treatment immediately. He calls an ambulance, and is simply taken to the nearest hospital. Cost is not a factor in any of this because he just doesn’t have time to think about cost. If he stops to negotiate price, he could be dead before he gets the care he needs.

There are just so many things ignored here. I’ll start with an analogy and then circle back to some of the finer points.

What if my car had a heart attack?

About 15 months ago, I took my car to a car wash, left the car with an attendant and waited around front for my car. After they finished washing and drying my car, I got in and could immediately tell something was wrong. The engine was pretty loud, and I noticed the temperature gauge was pointing to “really hot”. I put it in drive, just hoping I could move it to a parking spot or something so I could regroup. It didn’t make it to a parking spot (about 40 feet), so I just let it roll to a stop under a tree, out of the way. My car was dead – it wasn’t drivable and appeared to be in “limp mode”. I had no choice but to have it towed to see what was wrong.

Obviously, I wasn’t in danger of dying, but my car certainly was. What’s more, I was stuck – I couldn’t shop around for a good deal on the repairs because I need my car (I was going home for Thanksgiving in a few days, then off to Atlanta not long after that) and because it’s not drivable. Also, I was pretty sure the car wash wouldn’t be ok with me just leaving my car parked under their tree for very long. If my car were a person having a heart attack in Planet Money’s world, I’d call an ambulance and they’d whisk it away to whichever hospital could save it. I wouldn’t be able to negotiate the cost of repairs, and I’d end up paying a lot of money for some healthcare.

My car is saved, and I get a great price despite a desperate situation

What happened instead is that I called AAA, who sent a tow truck out in about 30 minutes. When the tow truck driver got there, I told him to take my car to Bush Gator Transmission & Auto Repair on Main Street. About 20 minutes later, it was up on the rack and they told me one of my cooling fans had died. I asked what it would cost, they told me, and I had them go ahead and do the repair. A couple hours later I drove home, plopped down on my couch, and finished planning my trip to Jacksonville.

“But you didn’t negotiate price either!”, you might be thinking. And you’re right… and wrong. The reason I didn’t negotiate price is that I knew I was going to get the best price. How? I’d been to Bush Gator many, many times in the previous five years. They’ve been my mechanic since I moved back to Gainesville in 2006. I initially went there because a friend told me about a really great experience he had there, so I decided to check them out. 1 When I first went to them, I did call around to shop prices, but I eventually just stopped doing that because Bush Gator was always far cheaper than anywhere else I called. 2

So, no, I didn’t negotiate the price of this particular repair. But I didn’t need to because I already knew they had the best prices and best service in town. I managed to get my dead-in-the-water car repaired in a pinch and I managed to get a really good price. Why isn’t this possible for healthcare? For heart attack victims, even?

Is healthcare innately different, or do we just treat it differently?

The common answer is some flavor of “healthcare is different” or “but this is life and death” 3, but this is very myopic. It assumes that Yelp! and Consumer Reports can’t exist for healthcare. It assumes that word of mouth isn’t important. It assumes that anyone who ever has a health emergency is totally ignorant of his options for care. It assumes people are incapable of making phone calls to find the lowest price for anything related to health or medicine. 4

But if I’m right, then there’s a big question we need to answer: Why isn’t healthcare a competitive industry? I don’t know, but I think Planet Money has the right resources to find out, and a great platform to tell us.

EDIT: This piece from Uwe E. Reinhardt is a good start: “Shocked, Shocked Over Hospital Bills

FOOTNOTES:

Apple iPhone Lull: Screw-up or growing pains?

Henry Blodget at BusinessInsider.com wrote “Okay, Can We All Now Please Agree That Apple Screwed Up With The iPhone?” in response to Apple’s unusually lackluster quarterly earnings report for Q3 FY12. He makes some good points, but he’s missing a huge factor regarding iPhone’s release schedule and how it’s changed over time: the Verizon iPhone.

He cites two contributing factors that hurt iPhone sales this year. I’ll just quote him:

  • First, Apple switched (or delayed, depending on who you listen to) the launch of that year’s new iPhone to the fall instead of the June releases it had had in prior years. This “delay” took many people by surprise, and it also kept the then-current version of the iPhone, the iPhone 4, on the shelves for three months longer than people had expected. This contributed to a sharp fall-off in iPhone sales in the summer months, as the “4” began to feel stale and customers waited for the new version of the iPhone, which almost everyone assumed would be the “iPhone 5.”
  • Second, when Apple finally released the new version of the iPhone, it was not the iPhone 5–it was the iPhone 4S, which didn’t look or feel much different than the iPhone 4. Although the iPhone 4S was a great phone and sold very well initially, it was soon leap-frogged in some respects by new, bigger phones from Samsung and others. And now, with Samsung’s very-well received Galaxy S3 out there, the current iPhone looks decidedly small and old. So much so that the “air pocket” in iPhone sales appears to have started one full quarter early this year and will therefore wallop both the June quarter and September quarter, while customers wait for the iPhone 5.

Summary

It’s possible that Apple screwed up with the iPhone, but probably not in the ways Blodget describes. At the very least, there are some factors he left out of his analysis. If Apple did screw up, it was by making a calculated decision to introduce the iPhone to a new US market on Verizon’s network. It’s obvious that Apple saw Verizon as an opportunity to open up the iPhone market in the US, and they took the opportunity. We don’t know the details of either the AT&T or Verizon contract, so it’s tough to know for sure what Apple was working with when they decided to release the Verizon iPhone 4 in February 2011, four months before the next “standard” iPhone release date.

I’ve already written about why the 4S release was expected and appropriate. I won’t spend any more time on that. 1

Apple delayed the 4S release until the fall instead of the summer

Here are the iPhone release dates so far 23:

  • iPhone – June 29, 2007
  • iPhone 3G – July 11, 2008
  • iPhone 3GS – June 19, 2009
  • iPhone 4 – June 24, 2010
  • iPhone 4S – October 14, 2011

Apple was remarkably consistent with release dates until the 4S. What happened? I actually kind of cheated above – there’s a release I didn’t include:

  • iPhone 4 – June 24, 2010
  • Verizon iPhone 4 – February 10, 2011
  • iPhone 4S – October 14, 2011

Apple needed to move out from under the exclusive AT&T contract, and open up the iPhone market in the US. This “How Apple’s Revenue Stacks Up” chart shows pretty flat-looking iPhone revenue from late-2010 into mid-2011. I couldn’t find numbers Verizon vs. AT&T iPhone unit sales, but my guess is that AT&T iPhone sales tailed off in early 2011, and were overtaken by Verizon iPhone sales through the first half of 2011.

It seems like Apple’s exclusive AT&T contract was still in place when the original iPhone 4 launched in 2010, delaying Apple’s move to Verizon until February 2011. Then they could start selling on Verizon immediately or wait for the iPhone 4S later in the year. They chose to sell on Verizon immediately rather than wait.

The downside to this decision was it left Apple in a bit of a pickle: their normal release cycle would put the iPhone 4S release around June 20, 2011 – only four months after the Verizon iPhone 4 was released. That would probably make the Verizon iPhone 4 adopters pretty angry, so they delayed the 4S until October 4.

In this context, it’s obvious to me that Apple made a calculated business decision: in order to expand its US footprint by adding new carriers, they released the Verizon iPhone 4 in February 2011 – only a few months before the typical iPhone release window. Then they bumped the 4S release until October in order to avoid angering customers who just bought a shiny new Verizon iPhone 4. Apple knows first-hand how angry people get if they release a new gadget, and then immediately undercut themselves (either on price, or by releasing another new gadget).

I think Apple wants to release iPhones at the end of Q3 or beginning of Q4 (fiscal), but they had to slip the 4S to keep new Verizon adopters happy. The 4S was released in October 2011, and I expect the iPhone 5 to be released in September 2012 (or sooner). The 5S will probably come earlier (August) and so on until the iPhone is back in the late-June/early-July sweet spot that Apple has used in the past.

Apple released the 4S instead of the 5

This is pretty simple, actually, and I’ve written before about how Apple cycles hardware and software updates to remain competitive while continuing to produce the best products. 5 I think Apple has a pretty clear pattern of this.

iPads so far:

  • iPad
  • iPad 2 (body changed significantly, much faster processor, different look and feel, smart cover, etc.)
  • “New” iPad (pretty much the same form factor, added Retina, a little speedier, not much else)

And they’ve followed a similar pattern with MacBook Pros.

  • (First gen) Original MacBook Pro – 2006 (spec bumps followed)
  • (Second gen with big change) Unibody MacBook Pro – 2008
  • (Spec bumps throughout 2009 before…) Big spec bump on MacBook Pro – 2010
  • (Third major iteration) MacBook Pro with Retina, SSD, thinner form factor – 2012

My point is that there really wasn’t any reason to think the 4S would be a 5. That’s just not how Apple does things. 2011 was a year for big software updates (including Siri) and a spec bump for the iPhone 4 (to the 4S). I also think releasing the iPhone 5 right after the Verizon iPhone 4 would have been a mistake. The way Apple did it, the Verizon iPhone 4 users could think, “Well, the 4S looks pretty neat, but I’ll just wait for the 5.” rather than, “WHAT?! I just bought the iPhone 4 and now it looks obsolete?” Meanwhile, a lot of new iPhone users bought the 4S or upgraded 6, so 4S sales were still strong. The iPhone 5 will sell like hotcakes, and eventually Apple will get back to its normal iPhone release cycle. I don’t think they have screwed up with the iPhone, they’re just experiencing growing pains as they seek greater market penetration in the US.