Turning a college hustle into a successful business – with Thomas Smale

This week, Keith sat down with Thomas Smale, the CEO and founder of FE International, a top-ranked global M&A advisor of SaaS, e-commerce & content businesses. He has worked with a number of business acquisitions both before he became founder, and he now specializes in it through FE International.

Smale started the foundation of what is now FE International about 11 years ago while he was a struggling college student. At this time, he was buying domains with his credit card to clean up websites and sell them back to business owners and other consumers for a small profit. This process is what inspired his thriving business today. He oversees a team that uses a similar business model to consult higher-level marketing and SaaS websites.

In this interview with Thomas Smale, you will learn:

  • Smale’s process for scaling your business up successfully
  • Tips on how to maintain credibility and authenticity with your client base
  • The benefits of tracking your customer’s movements early on in the sales funnel
  • How important a strong support team is for keeping clients long-term
  • How to prioritize and delegate as the founder of a company

You can connect with Thomas here:

Transcript:

Keith Perhac:

Hello again, this is Keith Perhac from SegMetrics, and this is Data Beats Opinion. Today we are meeting with Thomas Smale, he is the CEO and founder of FE International. He has worked with a number of business acquisitions both before he became founder, and then now specializes in it through FE International. Thomas, thank you so much for joining us and looking forward with talking you.

Thomas Smale:

Yeah, thanks for inviting me on Keith, appreciate it.

Keith Perhac:

Yeah, so you have a ton of experience in both buying, scaling, and then selling your own businesses, and then as I mentioned through FE International, doing that for other businesses, how did you get started with all this, where did this kind of start?

Thomas Smale:

Yeah, so if we go back 11 years to day zero of FE International, I was a college student, I think like most college students trying to make some extra cash, I didn’t really have any money. So at the time companies like FE International did not exist, so if you wanted to buy and sell, at the time I was buying and selling domains, very small websites, so at the time you’d almost buy them on eBay. So it would be places like eBay would sell domains, believe it or not. So what I was doing is I would buy a domain on my credit card and I would have, I think like a £500, I’m from the UK but now live in the US, so I’d have a 500 limit. I would max out the credit card at the beginning of the month, buy a bunch of domains or small websites, fix them up, improve them, present them in a better way, and then try sell them by the end of the month, pay off my credit card, do the same thing and repeat.

Thomas Smale:

So it wasn’t very exciting in the early days, it was like turned $500 into $1,000, and then $1,000 would become $2,000. And then I graduated college into a terrible recession and decided that it’d be a good idea to have a go at running my own business for a year, rather than getting a regular job. Now at time, obviously I had no money, so people started coming to me as I built up a bit of a reputation for being good at selling small websites, small domains, and I’d written a very small course about it at the time, I’d published a book. So people came to me like, “Hey, Thomas, I read your book, you’ve been buying and selling businesses yourself, can you help me?” And at the time I think my biggest sale ever personally had been like $3,000, which I thought was huge amount, to a student at least, that was a huge amount of money. So I thought I was rich, made it, never had to do anything.

Thomas Smale:

People then came to me, I think of first deal I ever did was about $20,000, I help them sell their business just with processes I’d been used using myself, and then they paid me 10%. So I made $2,000 with, effectively, no capital outlay other than my time, and I was like, “Oh, this is great, I don’t have any money.”

Keith Perhac:

This is much better.

Thomas Smale:

What better way to scale than effectively helping other people. So then it kind of snowballed, like I said, companies like EF International did not really exist back then. There were some out there, but I didn’t think they were very good. So kind of snowballed, word of mouth started because there weren’t many people doing what I was doing, built up the company. Throughout the entire time over the last 11 years, I mean, FE and our various side ventures and projects within FE are now around 90 employees, so we’ve grown quite substantially. We have offices in London, New York, I’m in San Francisco, we have an office in Miami, so we have a team all over.

Thomas Smale:

Throughout all of that time we’ve also bought and sold our own businesses between myself and my business partner. We tend to, for perspective, FE International represents about around 150 clients per year. And we ourselves buy or sell one or two businesses a year. So we’re a very small percentage of overall volume. Part of the reason we do that is firstly I feel like just our skills are sharper if we’ve done it ourselves, it’s all very well giving someone advice but until you’ve actually done it yourself it’s somewhat theoretical or hypothetical. Secondly, this is all I know. If you said to me go invest in real estate, I don’t know anything about, I mean, I own a house and as you can tell, my house is half empty. I don’t know anything about anything other than the online world, so that’s what I know about, so that’s what I invest in.

Thomas Smale:

I also feel like it helps founder to founder, almost all of the clients we work with selling their businesses are founders, I feel like it’s much easier to associate with them if you are a founder yourself.

Keith Perhac:

Right, and you know what they’re going through.

Thomas Smale:

Exactly. So while I’d be lying if I said I’m the one providing basically any of the services at this stage, I’m mostly managing the team, overseeing deals from a high level, building processes, I feel like experience my business partner Ismael and I have found building up our own businesses and acquiring and then selling them on has been hugely beneficial. And it means I guess we got the real experience doing what we tell other people to do. I guess that’s a little bit about the history, and as time’s gone on the deals we now buy ourselves are much bigger than they were five years ago, because I guess we’re fortunate that we’ve grown, we now have more capital, we can buy bigger businesses and welcome, I guess, more complex things.

Keith Perhac:

Right. And you know, it’s really interesting that you mentioned that, especially because I don’t think that there are many companies that do that, that are also working and working to scale their own business, like buying a business, scaling it, and then trying to sell it to really, like you said, stay sharp and to really prove that they know what they’re talking about. I mean, in the marketing industry, that’s pretty par for the course is that people are just spewing off stuff and have never actually done it, but they’re like, “Oh no, this is how you’re going to grow your list, this is how you’re going to grow your business.” Like, well, what’s your business? And it’s like 10 bucks.

Thomas Smale:

Yeah exactly. That’s part of the logic for me, I just feel like it’s easier to give, I’m sure every consultant says this, but easier to give genuine advice which is truthful if we’ve actually done it. So a lot of what FE International does is based around my own personal philosophies, so a lot of people might not like it like, “Hey I don’t like your process, don’t like your team, this sucks, but this is the way I think it should be done.” And then there are lots of other ways you can do everything, same with marketing as well, there’s not necessarily right or wrong answers, but we have our processes built around our own experience.

Keith Perhac:

Right, we know that this works for our process and for our industry and our niche, may not work for yours but at least we know it works in this category.

Thomas Smale:

Exactly right.

Keith Perhac:

So you’ve really taken, I mean, going from selling 500 … spending of £500 for a domain to selling that, to selling a company, to now 90 people at FE International where you’re really overseeing a lot of it. One of the things that you are very much an expert in, and I think it really shows with that growth, is scaling. So when you’re working with other companies to sell their businesses, I believe you had mentioned that you also work helping them scale up and getting ready to be saleable, is that?

Thomas Smale:

Exactly, the vast majority of people that come to us, I guess bottom of the funnel, own a business, they come get a free valuation which we offer to everyone. And let’s say their business is worth $5 million today, and they’re like, “Hey, I want to sell it for 20.” Like, we don’t have anything to sell them at that stage, they’ve paid us nothing, so we generally say, “Okay you need to go work on, here are three things we’ve noticed about your business which is weaker than other businesses we’ve seen at a similar level. Go work on that, call us when you get to 20 million.” So a lot of it is helping them scale without physically doing it ourselves on their behalf.

Keith Perhac:

Right. Which is beneficial for everyone because they get a bigger company, they get a bigger paycheck, and you get a bigger cut. And it’s also improving the industry as a whole.

Thomas Smale:

Exactly, like bigger industry, it’s good for everyone, yes they might end up going to work with a competitor, but long-term, if the industry grows by a factor of a hundred, does it really matter if one or two people go elsewhere? Big picture, it doesn’t. Deal by deal, yes it’s frustrating as a lot of competition, but big picture I don’t think it’s [crosstalk 00:08:17].

Keith Perhac:

Yeah it’s good for everyone.

Thomas Smale:

Exactly.

Keith Perhac:

And also you do have that experts positioning around that when they come to you, they’re like, “Hey, what do we need to do?” You tell them, they go do it. At that point there’s an emotional beholdenness to you and to FE International, it’s not like, “Oh man, FE International, just with their advice I 5X, 10X, my company, I’m going to go over with schmo blow over here.” I imagine it does happen, but I imagine you have much more of that connection to them and people tend to come back to you and say, “Okay, I’m ready now.”

Thomas Smale:

I would say so, definitely on our fridge there are obviously some examples where people don’t, and ultimately you’re paying us a lot of money so I totally understand, you’re well within your rights to go shop around and people do. But yeah, I definitely feel like it builds credibility if you give someone advice, they go roll it out and it works. But ultimately we’re not the ones doing the work. So the founder or founders, they’re still the one doing the work, they’re the ones putting two years of 60 hours a week in, not me. So I’m not in any way … they’re not obligated to work with us at the end of it, so like I said, big picture, more people in the industry having exits, more people having bigger exits is good for me and good for FE International, even if we’re not necessarily on every ticket.

Keith Perhac:

Yeah, definitely. I do want to get into some of those ideas and some of those, what are those scale points? What do you look for? But actually I thought of something I’m kind of curious about, are there companies that come to you that you look at them and it’s like, you’re just not going to be able to scale, what are some of the warning signs of a company coming to you and saying, “Hey, we’re at 500,000, or we’re at a million, we want to get to 10, to 50, to 100.” And you’re just like, “Probably not.” Is there anything?

Thomas Smale:

So I would say as a general point all businesses are capable of scaling, and emphasis on the word business because I think usually what holds businesses back are the people behind it, the founders. So often the business is almost never the problem but yes it can be tweaked, the product might kind of suck, it needs some work, the pricing is probably wrong, they probably haven’t set up any emails, they’ve got no funnels. That’s common, almost all small businesses have that as a kind of issue. Generally the challenge is with the founder, and a lot of the work we do is helping the founder understand what they actually want. So for a lot of people to scale your business it’s unavoidable that once you get to a certain stage, you have to start hiring people. And with hiring people comes managing people.

Thomas Smale:

A lot of the clients we work with, particularly at the lower end, so for us as that’s a business that might be worth say $1 million. So still a lot of money, it’s probably just a single founder doing it themselves, making a nice living for themselves that they don’t actually want to hire people. So usually scale is limited by the, I guess we call it the aspirations or the goals of the entrepreneur or the founder themselves. I’d say there’s almost no business that I can think of that I’ve ever seen that is capped out growth wise and you’re like, no, you absolutely have 100% monopoly of this industry. Not the kind of sized businesses we see anyway, it’s almost always limited based on the founder and what they’re willing to do. So a lot of the time we might tell someone, “Hey, your business is worth $5 million.” And actually what they need to do to get to 20 is not something they’re willing to do. So they go, “Okay, let’s sell for five million.”

Thomas Smale:

So we have probably quite honest conversations with people because it’s almost never the business. I think a lot of founders assume it’s the business, I know I used to. I remember when we first got to … if you were Ismael my business partner, now he still likes to laugh at me because when he joined the company in 2012 and I’d set up in 2010, he was like, “What’s the biggest the business can possibly get to?” And I was convinced we were just short of $1 million revenue at the time, and I was convinced about $1 million was the cap of the industry because there was no one really else, there was no one to compare to. And I was like, $1 million.” And now we’re way in excess of 10 times that now.

Thomas Smale:

But at the time, I didn’t know. So a lot of the times as well, you are somewhat limited by, particularly if you are building a niche or a micro, whatever you want to call it, in the side projects, all sorts of different words people describe it as now, you often don’t know how big your market is because you might be one of the only ones. But often you’re not actually limited by anything other than your own ability to scale. But then also like doing podcasts, for example, going to events, and then you would start speaking to people who didn’t even know your industry existed. And then they’re like, “Oh yeah, I should sell my business.” And then that person goes and tells 10 other people, and then over time you scale.

Keith Perhac:

And this was something interesting when we started with SegMetrics, I was looking at other analytics companies in the industry that were at our scale, so like Baremetrics, ProfitWell wasn’t a thing back then, but just like those, and I was looking at their revenue versus some of the other industries like email marketing and stuff like that. It was like, okay, we’re going to be limited by the size, we understand that, and we’ve just blown past all of the limitations we thought that we had because we saw these very mature companies and we knew their monthly revenue because they were open about that, and we’d blown past all those.

Keith Perhac:

And now we’re starting to look at, okay we’re looking at the Visible’s and the Marketo’s, and the high level ones. And it’s like, oh, there really isn’t a ceiling here at all. The ceiling is like you’re saying, the ceiling is what we’re going to make and what we’re going to force ourselves because either we don’t want to grow beyond that and we’re not comfortable with it or whatever. And so making that decision to like, okay, there is no business ceiling there, has been really just eyeopening for us I know.

Thomas Smale:

Exactly, because like now I sit here and then we like, well, how big is Goldman Sachs? How big is JP Morgan? And effectively we are at the stage now where we compete with them, particularly at their lower end, for us our higher end, like $100 million deal. We want it, for them we have our best people internally working on it, they have their like worst, most junior people working on those deals. So we won those deals and we work very hard to get them and we’ll often win them. But years ago, if you said, “Oh you’re going to compete with JP Morgan,” I would have laughed in your face and be like, “No, I’m competing against the guy who’s going to try sell the business himself,” which is not really included in industry size, but it is a genuine other option for people.

Keith Perhac:

Yeah. I mean our competitors, what I would consider our real competitors, are owned by Adobe and Salesforce and stuff like that. It’s like, okay, going up in the world.

Thomas Smale:

Exactly, yeah.

Keith Perhac:

So talking about that scaling and that it’s usually a founder hold back or hurdle mentally almost rather than a business one, on the business side what are some of the things that you start to look for that are things that you need to … I guess the trigger points that start saying, “Hey, you need to scale. This is where we start to look if you’re not being able to scale,” what are some of those pitfalls, I guess?

Thomas Smale:

So I think probably the most common one I see, and I’m probably a culprit of this as well, and I think almost all founders are particularly if you found technical founders, like my marketing is kind of … sorry my background is not like marketing, I did a business degree at college and then I kind of stumbled into the industry and I’d figured out how to build a business, which is, I like to think, somewhat unique, but basically every founder is the same. They’re like, well, I didn’t come from money, I kind of figured it out, still don’t know what I’m doing 10 years in, but have grown, we’re now doing okay. I think far too many people focus on marketing, so like my business isn’t growing because they don’t have enough leads. But then you look at how they’re nurturing those leads to become customers, and then how they’re nurturing those customers to stay customers and spend more and they don’t put any focus on it.

Thomas Smale:

They spend, the vast majority of technical founders if you look at their day, they spend 90% of the time on product, so the product has to be better, better, better, better, better, 9% of the time on marketing, and then 1% of the time on admin. Whereas in reality as your business scales that then you spend way more time on admin and HR, because with 90 people, as you could imagine, there’s always some sort of people issue going on somewhere internally. You probably start spending way less time on product, I wouldn’t necessarily say always trying to improve our service, but it’s somewhat mature. We now spend a lot of time figuring out, well, if someone sells a business with us, what happens over the next five years? Most people don’t retire, they go launch another business, so we’re like, well, how do we make sure they come back and work with us in five years time?

Thomas Smale:

So we kind of focus on, even though we’re not a SAS business, we focus on LTV. I think way too many founders don’t really think about … they kind of, let’s say the average they sell a product for $50 a month, average person stays for 18 months, they’re like, okay, well our LTV is 900 bucks. That’s forever our LTV, they don’t work on optimizing that number at all, they’re like, well, if I find another 10 people to sign up then I’ve got another 10 people, 900, well I’ve made $9,000 effectively. So what I think people should spend more time on is how do you increase that LTV? And in any business you can increase LTV, SAS, service, E-commerce, any kind of business. A customer has a lifetime value, how do we increase that. So often I think, particularly in the software industry, so the number one thing, and this has probably been repeated thousands of times by now, it’s always pricing. I would say everyone gets pricing wrong almost universally. Every business can improve its pricing all the time, you should try and improve it.

Thomas Smale:

But usually, if I was to give very generic advice to any SAS business at $10,000 MRR, you could almost blindly double prices of all of their pulse points and it will almost definitely grow the business. And I could give that blind to anyone at 10,000. When you get to say 200,000 MRR, not quite that simple, you can probably optimize, but it’s probably not making very basic pricing errors. So that’s a really common one. Again, any business, similar service business, most people, particularly early on, they undercharge for what they offer. They’re charging $50 an hour, and there’s someone offering exactly the same thing who’s asking for $200 and people are happy paying the $200 for literally exactly the same service, just packaged slightly differently.

Keith Perhac:

And I think that’s one of the things that people don’t realize is that you can really go as high as you want with pricing, as long as you’re updating the packaging around it. I think easily, if you’re at that 10K MRR, yeah double it, don’t even have to change anything just double it. But as you get higher, you can change the wrapping around that pricing to, definitely with the same service, increase the value proposition a lot.

Thomas Smale:

Exactly. And sometimes, particularly at the lower end, you don’t even really need to change that much.

Keith Perhac:

Right.

Thomas Smale:

At the higher end, yes. But there are things you can do to add perceived value and make it seem better without actually having to change a huge amount. But I think pricing is extremely common that people get wrong, or anything to do with optimizing LTV effectively.

Keith Perhac:

Right. And I think that people, when they’re looking at LTV, they don’t really realize that there’s really two sides of the LTV. There’s what are you giving on the backend, so how are you increasing that length during SAS, what are your upsells, do you do consulting on top of the product, what are the subscription rates like? That part of things in the retention side, but there’s also the front end, it’s like, where are you getting your leads? Are people from different channels and different ways that they find you different lead sources are going to be worth different amounts of money over the lifetime, because some people, we had, I won’t name names, but we had a discussion going on about one of the lifetime deal companies that are so big and they were asking them, well, what’s the value there? It’s like, well, they’re all going to be cheapo customers because they’re looking to pay $50 for lifetime value, and if that’s valuable to you then cool. But most of the time your lifetime value is going to be much higher than that if you get it from a better source.

Thomas Smale:

For sure. I think that’s where the marketing part can be relevant because a lot of people it’s like, well, like I said, LTV say 900 bucks, but maybe if you got the right kind of customers without changing anything, it might be five times higher, it might be four and a half thousand and you haven’t had to do anything. So that’s definitely something that we spend a lot of time on as well, it’s like, well, as you can imagine at this stage in the business, we get leads from everywhere, but all leads are not necessarily equal.

Thomas Smale:

So we spend a lot of time on, not necessarily lead scoring, but just establishing what’s the average value of a lead that we get from say a podcast, I’m like okay, well this is worth a hundred bucks, maybe I should do more podcasts. Maybe it’s an event, maybe it’s $1,000, but an event obviously has significantly more outlay. Maybe it’s SEO, it could be all sorts of different things, but we spend a lot of time working backwards with our conversion data, client data being like, well, where do they come from? What is it worth? Why don’t we do more of that, less of that?

Keith Perhac:

Yeah, I mean this is one of the things that we’ve always really pushed when we’re doing with SegMetrics with the conversion optimization of your funnels and stuff, which is not just one point. So it was like, okay, the event or Facebook ads or whatever, but also a combination of that segmentation. So people in the event who came to the event who are copywriters great, they’re worth like 900 bucks LTV, people from the event who were freelance writers, they’re only worth 100 bucks. And being able to make those combinations of people who did this and this, and then are worth more, and then identify where on that funnel the most valuable leads go and where the least valuable leads go, and then try to figure out why. Why is it that freelance writers don’t like our product? And is it because our webinar keeps talking about designers and all of our marketing copy is around designers? Just being able to figure out stuff like that.

Thomas Smale:

For sure. Like the older your business gets, I guess the easier it is, particularly if you’re actually tracking everything from the start, you don’t necessarily need to have answers straight away.

Keith Perhac:

Yeah, exactly, exactly. So what are some of the things that you’ve kind of looked at as you’re looking at sales? So we talked about lifetime value looking at how to increase that, what are some of the warning signs, or what are some of the low hanging fruit that you look at when you are looking to scale a business like that?

Thomas Smale:

Yeah, as I say, once you fixed pricing, and I say fixed it should be an ongoing [crosstalk 00:23:27]. Exactly, you should always be testing. So I would say average business, SAS business, you should be running at least one price test a month, super simple, double the price of the package, add a new package, remove a package, add a free trial, remove a free trial, whatever it might be, always be testing, it’s by far almost always easiest way to increase revenue longer term. A common one a lot of people don’t put too much effort into is much earlier in the funnel, so things like free trial to paid conversion rate. And a lot of people even earlier than that, if you don’t have a free trial, it might literally just be like website visitor to free trial, or website visitor paying user, or it might be somewhere different in the funnel, like to demo. A lot of people then don’t put enough thought into … they’re like, “Oh, well, my SAS is self-serve therefore I’m not going to touch the client,” just because it’s self-serve doesn’t mean you shouldn’t help them.

Thomas Smale:

Like one of the other best ways of increasing your LTV is improving onboarding. So you should constantly be figuring out ways to onboard clients better, and that should not necessarily mean ways that reduce your time and costs, it’s things that get people actually … I mean, the main reason people churn ultimately in the majority of SAS products is because they’re not using it, or not using it properly. Particularly once you get to enterprise level, enterprises even at like FE International side, I don’t want to churn off anything we use unless it literally stops working. So we won’t churn unless we’re not using it properly. And companies will, we will often have like 20 licenses to something and I realize no one in the team is using it and we’ll cancel. But that’s usually because we’ve not been onboarded properly, so we’ve signed up, yeah I have an account but I’ve no idea what it is, what it does.

Thomas Smale:

So spending time, and you can do this in a very automated way like getting people onboarded in a better way, and like you say, tracking what they’ve done, like has this person watched the onboarding video? Have they signed up for an onboarding call? Again depending on your LTV, you can’t do this for everyone. Have they read our ebook, have they read our blog posts, did they subscribe to our podcast YouTube channel? Tons of different stuff like that, track all those things, and like you mentioned, figure out what are your best customers doing? Do they read documentations, do they watch videos, whatever it might be. Chances are your best customers are somewhat self-taught, but they’ll do that by reading all your documentation, speaking to other users, that kind of stuff. So anything early in the funnel, that’s where you have the most chance of leakage because it’s like, well you have 1,000 people visiting your website, 100 people are then signing up for a free trial, and then 10% of those, so 10 people are then becoming a paid user and you’ve lost 990 people between visiting your website and turning into a paid user.

Thomas Smale:

So that’s what you should be spending at least a reasonable amount of your time, and then obviously once they’re a paid user as well, figure out how to keep them. Often it’s just as simple as proving to them they are getting results with your product. So usually just as simple as each month send them an automated email which says, “Hey Keith, congratulations, this month you made X many dollars with my product.” Or you converted 100 more people, or you designed 50 more pages or whatever it might be, remind them that you exist and remind them that they were successful with your product, and most people won’t churn.

Thomas Smale:

I think too many people are like, “Oh, well actually it’s really important that I’m really honest, so I’m going to email them and warn them they’re going to be re-billed.” So it’s like in three days, you’re going to get billed. Yes, you should do that as well, but you should also email people explaining it. You shouldn’t feel guilty for charging them, I think a lot of people are like, I have to warn the client many times that they’re going to get billed again. Which yes, that’s correct, but you should also make very clear to them how successful they’ve been with your product. And if they’re not, how do we improve that? If they’re not logging in, they’re not … so they’ve set up, you have a product that helps them generate more leads and they’ve got zero leads, then eventually they’re going to churn unless you help them find leads. So call them, reach out to them.

Thomas Smale:

If you’re a small business, I mean almost any business, you should be able to reach out to people manually. Just put the work in yourself early on. There’s so many different things but I think a lot of people get very fixated. The vast majority of technical founders spend all their time on product. They’re like, “Oh, people are churning because we haven’t got a feature which emails them, sends them a pen in the mail with our branding on, because they haven’t got a branded t-shirt,” they’re definitely going to churn or someone [crosstalk 00:28:14].

Keith Perhac:

As I look at my box of branded t-shirts over there, you’re shining a spotlight right on them.

Thomas Smale:

I have a cupboard that I’ve not told my wife about which is full of various merchandise. But yeah, I think too many technical founders get obsessed with product, they always believe churn is because there’s a problem with a product, in the vast majority of cases it’s almost no one in my experience churns because it’s lacking a feature, because they never would have signed up in the first place.

Keith Perhac:

I feel the same way, and it’s something that I’ve had to overcome with my dream because I am a technical founder. And for a long time it was, oh, we just need this one more product or one more feature and everyone’s going to come and be banging down the doors. And what I’ve really seen is it’s the onboarding, it’s the support, our customer success team is like five times the size of our dev team, it is important to have really good support. And so you had mentioned that a lot of technical founders, they think it’s just a turnkey thing or self-serve, so someone signs up, they started using the application, and then the founder never has to touch them. And I think, I don’t know of any successful businesses where that’s actually true, like where …

Thomas Smale:

Exactly. So yes it can be self-serve, but adding some people into that process can be hugely beneficial. But I guess the caveat there is, depending on your target audience, 90% of customers, even your best customers on a SAS product will actually never talked to you, and they’ll never want to talk to you. But 10%, and the other thing about the 10% who do want to talk to you, if you’re competing, like you say all these other companies you’re competing with, even the bigger ones, if you’re the first one to pick up the phone, or the first one to reach out to them proactively, or send them some suggestions which are truly personalized, they’re going to stay with you because most other companies haven’t bothered to do it. And the self-serve ones are going to stay anyway, they’ve already figured it out, they’re developers, they don’t want to reach out to anyone, they’d rather figure it out themselves. But the ones who do make the effort to reach out to you, they’re the ones that will drive that value long-term.

Thomas Smale:

So yeah, self-serve is fine, but self-serve with help if you need it. Similarly if you go to a supermarket, all supermarkets these days have self-checkout, or most of them do, but that doesn’t mean when you’re going around getting your groceries that there’s not … you go to the meat counter there’s still someone there to chop your chicken, you’re not physically cutting the chicken yourself, that would obviously not work.

Keith Perhac:

Yeah. And I think you hit on something really important there, which is that the people who don’t want to talk to you are going to make that decision themselves, and there’s nothing you can really do from a personal standpoint that really helps them. You can make documentation better, blah, blah, blah, that’s all product side. But the people who do want to talk to you, if you’re not there they’re going to feel let down. So the people who don’t want to talk to you, it doesn’t really matter if you’re there or not, but the people do want to talk to you. So going back to your supermarket example, if you only had the self checkout and someone wanted to go through the regular checkout because they had a question, and they’re just standing at the checkout waiting for someone to show up, that’s not a great … you’ve suddenly failed your customers.

Thomas Smale:

Yeah, hence why they have options, because they’ve figured out there are some customers who will just leave. And then for them it’s also like, I don’t know a huge amount about supermarkets, but they have a calculation like self-serve means a higher rate of theft, but then you’re kind of similar to like phone boarding has probably a higher rate of churn because they’re figuring it out themselves and then leaving. So this is where the data comes into it, you need to be figuring out, what’s the LTV of someone who’s self-serve, what’s the LTV of somebody who’s not self-serve? And then how do we find the ones with more of the people that look like the higher LTV and less of the people with the lower LTV.

Keith Perhac:

And that’s what I’ve found as well is that most of the higher LTV people do have more, they want to talk to someone, or they at least, maybe not constantly, but at least one call just to make sure, or one discussion to make sure, yeah there’s real people here. Looking at enterprise deals, I used to do enterprise sales and I guess maybe I’m overly pushed in that direction, but larger customers seem to want more handholding, and they want to get on more calls, and they want to have more of that support behind them because they want to know when something goes wrong that they can be helped.

Thomas Smale:

I would say so. And it’s probably also because at that level they probably found you because they’re trying to solve the specific problem. Whereas like the freelancers that you mentioned, or people like early on, or the lifetime deal crowd, they’ve heard it’s a cool product, so they’re going to buy it, and then they’re like, “Oh, I’ve got this lead tool I bought for $50, how do I get more leads?” Whereas big companies don’t think like that, they’re like, okay, we have a lead problem, what is a tool that will help us automate outreach or something like that. And then you go research tools that help you and maybe you’ll find the $50 tool, but probably not what the enterprise is buying, they’re probably willing to pay more for the company that will get on the call and explain how it’s going to help solve their issue.

Keith Perhac:

Yeah. And the security of it as well, and this took me a long time to realize, but when you are charging more and you have more support around it, there’s almost like a guarantee that you’re going to be around longer. So bigger companies, they don’t care that they’re saving $50 or $100 a month, if there’s a fear that you’re going to go out of business and they’re going to have to find a new solution in six months.

Thomas Smale:

Exactly.

Keith Perhac:

Yeah, to change their entire tool. And I think that’s what a lot of people, founders, especially technical founders, look at as like, oh, I think that everyone thinks like me and doesn’t look at the higher echelons of like enterprise or larger businesses that they’re trying to solve the same problems, but the hurdles are not price and it’s not a technical problem, it’s a support and a person problem.

Thomas Smale:

Yeah, and also often like big companies they have many priorities. If I look at my lists of things I should do on my to-do list, it’s probably literally a thousand things. How many will I actually do? Like 10, but I’ll pick on the ones that I think are most important. And the other ones it will be like, well, can we just remove it? Can I delegate it? Can outsource it? Is there a product we can sign up for that helps solve those problems? And if so, let’s do that. Yes technically I could use one of our development team to build it out ourselves, customize it, do everything we need, but if it’s not a one priority, then why would you do it. Whereas a lot of developers are thinking like, well I could build this tool myself in two weeks so I’ll save all the money. Yes you could, but big companies often their priorities are not the same as what they might be to you.

Keith Perhac:

Right, exactly. And that’s, I mean I don’t know if you read Hacker News, I believe you do, but the famous Dropbox quote, which was when Dropbox came out, someone famously said, “I can’t believe there’s a product you can just are Rsync to the server that you set up.”

Thomas Smale:

Yeah, I could have made it in a weekend or whatever.

Keith Perhac:

Right, and it’s like the technical side is not the thing that they’re solving, it’s the ease of use.

Thomas Smale:

Exactly. I think Hacker News is a very good example of the demographic of people who are probably not going to buy your product because they think they can make it. So to answer your question, I’m aware of Hacker News but for my own mental health I try and avoid it at all costs.

Keith Perhac:

Yeah, me too. I used to be much more prolific on it than I am now as like, I still read it because I’m addicted, but other than that. Excellent, excellent. Well I think, I do want to be conscious of your time, so as we’re looking to scale, or as people are looking to scale, what are some of the other gotchas or the things that once you see you should really latch onto, is there anything else that comes to mind that’s like, oh, we saw this weird thing, definitely latch on that and ride that all the way to the moon kind of thing?

Thomas Smale:

Well I think that actually is the exact point, once you find something that works, keep doing it, you don’t have to continuously, I think too many founders are like, oh yeah, I’ve got this working, now I’m going to go do something else. But actually there’s a lot of businesses, because even if you look at a lot of companies who have gone public and it’s like, oh, how did you scale your marketing, it’s like outbound. What else do you do? Oh, no, we just sent, we hired 100 STRs, not one, and we sent a million emails a month, not 10,000. So often you can literally scale, and I still have to tell myself this every day, you can actually just do more of what’s already working, you don’t necessarily need a new bright idea.

Thomas Smale:

And as you get bigger and bigger, small changes can make drastic differences to your top line. So early on, so that $10,000 MRR level, you probably do need to be doing things that add 50% revenue to be worth your time spending three months on it. As you get bigger, let’s say 10 million revenue, even tweaking something by like 1%, that’s another 100,000 a year, that’s like, well, I can hire another full-time employee with this one tweak. And then it’s like, oh, here’s another one that’s 2%. So these marginal gains add up over time, which I think is something you realize as you get bigger, you don’t necessarily need all these big wins, you can just do more of what’s already working and improve what’s working. Don’t have to necessarily have to be overly creative.

Keith Perhac:

Yeah, and I think that’s something that a lot of people … I think people get stuck in that first, when you’re still trying to figure out what’s working and you need those big changes, and I think people get stuck in that mindset instead of like, okay, I found this works. You can really scale something all the way up into the moon as far as like optimizing it, and like you said, when you’re doing a million, 1% is a great growth metric. At the beginning when that’s $100 or $1,000, that doesn’t feel as good, but once you’re at a million, 10 million, a hundred million, whatever, it becomes a very powerful multiplier.

Thomas Smale:

Exactly, I’m not a math expert or an engineer or anything like that, but just I think a lot of people don’t realize that compound growth applies to incremental improvements as well. Lots of 1% improvements add up over the course of a year. You don’t have to find … you don’t have to double your leads overnight. In most businesses it’s not actually … firstly it’s not actually possible or easy, and too people spend way too long trying to find like the magic, like you say the lifetime deal crowd is like, oh, this magic tool, press a button I get more leads. At least in my experience, if it was that easy, then everyone would do it.

Keith Perhac:

Exactly, exactly. I think that it’s one reason I think why SAS is so popular as well, especially for investment and for businesses because it’s recurring revenue, and a 1% increase in the number is ongoing. Whereas E-com, or kind of just regular sales, that can stop at any point because you have no recurring stream, and that’s why a lot of E-comm now going towards those subscription boxes, or the products that are automatically sent, or anything to get that recurring revenue because it increased that value, that valuation, that scale. Now one customer is no longer worth the $50 one-time purchase, they’re worth $50 times however long they’re part of your ecosystem.

Thomas Smale:

Exactly.

Keith Perhac:

Awesome. Well, Thomas, thank you so much for joining us. I know that everyone listening to this has gotten a ton of value out of this because I’ve gotten a ton of value out of this. Where can people find you and, yeah, where can people find you on the web?

Thomas Smale:

Yeah. So I guess, like to my point of what works, starting now I’m more active on social media so you can find me on LinkedIn, Facebook, Twitter, whichever one you like, pretty active on those three, same with company like the FE International we have an account on each. If you’re interested in more specific content about what we do, might be buying, might be selling, for most people it’s eventually selling kind of fundamentals, evaluation, go to our website, have a blog, we have white papers on industry trends like what’s happening in valuations. So yeah, we’ll have evaluations, we have specific blog posts about valuations for specific business models. Or if you want to speak to us about evaluation, we offer free evaluations. If you want to buy a business, or you’re thinking about buying a business, you can reach out. And like I said, valuations are free, there’s no harm in reaching out. And the team are always publishing new content, which is, like I said, not for everyone, this is kind of the point, you have to go on there and find what’s relevant to you, but there should be something for everyone.

Keith Perhac:

Awesome. And we’ll put those links in the show notes and a link to all of that.

Thomas Smale:

Cool. Well, thanks so much. Appreciate having me on.

Keith Perhac:

Yeah, definitely Thomas, thank you so much for joining us.

Thomas Smale:

Thanks Keith.

Keith Perhac:

Cheers.



Rylee Mathis

Rylee Mathis is the Virtual Assistant to CEO of SegMetrics, Keith Perhac. She assists in the curation of DBO content and marketing as well as social media posts and partner outreach for SegMetrics.