A popular misconception about entrepreneurship is that you can only launch a business once you’ve nailed down every detail. Many entrepreneurs don’t make it past a startup’s ideation and planning stage. But it’s okay if you don’t have it all figured out – actually, it’s impossible to know everything before launching your business.
Look at Patrick Baynes and Michael Coupe, the founders of Nerdwise. They weren’t sure about their go-to-market strategy when they launched their startup. And it took them a while to figure out their product-market fit, ideal customer, and pricing strategy, but they succeeded anyway.
Nerdwise has since evolved into a company that helps companies boost revenue with proven sales practices and technologies, generating millions in annual recurring revenue helping more than 500 customers. Find out how these founders experimented with product, pricing, and customers to best help companies grow.
Failure Is the Best Teacher
After graduating college, Patrick (the CEO of Nerdwise) joined LinkedIn as an early employee. There, he soaked up everything he could about the software and startup scene. “I describe it as being a back-of-the-bus entrepreneur as I was just along for the ride at an early startup and didn’t have that much influence. I left LinkedIn at twenty-four and cofounded PeopleLinx with one of my LinkedIn coworkers. Then I became a shot-gun-seat entrepreneur,” Patrick says.
PeopleLinx was the first employee-based social media management tool that helped company employees exploit LinkedIn. Enterprises could create best practices around employee profiles, connections, and what to share.
PeopleLinx started slowly. Patrick raised venture capital and built a great team but lost everything when LinkedIn changed its policies.
“LinkedIn pulled our API access, which essentially killed the company,” Patrick says. “They did this to a dozen other companies, but none of them were as badly affected as us. We were one of the fastest-growing companies inside a number of venture capital portfolios, but then this happened. I appealed to LinkedIn for a long time, but they ultimately stuck with their decision. That’s when I learned the importance of not building your company on top of other ecosystems,”
PeopleLinx couldn’t bounce back from that, but the company did get acquired by Frontline in 2015.
After Patrick moved on from PeopleLinx, he called one of his best friends from college, Michael Coupe (now the Chief Customer Officer of Nerdwise). Michael didn’t have a background in tech but was looking for a new project.
“I had been sitting on a tool that could automate the content creation of social media posts and I thought Michael would be the right partner. He didn’t even have a laptop at the time,” Patrick laughs. “Michael came to sleep on my couch. Our ability to be scrappy gave us more runway to figure out what we were doing.”
In 2015, Patrick and Michael cofounded Nerdwise. Their main goal was to bootstrap the startup (even though they didn’t know to call it that at the time). Patrick says, “I didn’t want to have investors and rely on outside capital. I learned from PeopleLinx that when you raise money, you go from having a business to having an investment vehicle. Now you have people to report to and stockholders watching the numbers. I didn’t want that to be a part of my next company. I wanted to have all the freedom, both personally and professionally.”
Is There a Better Way to Solve Your Customer’s Problems?
Nerdwise started by selling an automation tool for social marketing. Patrick says, “I didn’t know if we were building the right solution or not, but I knew how to generate a lead and acquire a customer. That was one of the biggest differences between this startup and my last. I had learned how to hit the ground running.”
By building an outbound sales team and a highly-effective sales funnel, Nerdwise generated many leads and acquired customers in little time. One of their first customers asked the founders how they were able to build up a customer base so quickly and whether they would be able to help them generate leads just as fast.
Patrick says, “It wasn’t that far from what we were doing. When that customer asked if we could generate leads for them, I realized that this could be something even more valuable than what we were selling. And it was something I was very good at. So we adjusted our offering.”
But the founders had another reason to change direction. While Nerdwise had gained many leads and saw a great response in the market, the company didn’t monetize fast enough (more on that later). Patrick attributes this to focusing too much on product and not the problem they wanted to solve. Companies didn’t buy the product because it could automate social marketing, but because they wanted to grow their businesses. That was the big-picture problem Nerdwise wanted to solve.
“I asked myself whether a social marketing automation tool was the best way to help them grow their businesses. Being honest, I realized our offering was not the best solution to that problem. I knew a better way to do that. So, I had to move away from my love of the product and pivot Nerdwise to lead generation,” Patrick says.
Lead generation helps businesses acquire customers faster, but it’s also difficult to execute correctly. It took Patrick years to figure out lead generation at his previous startup. If the founders accelerated lead gen for other companies, they’d win more customers.
At the time, many of the existing lead generation services were fragmented. Companies often needed to sign up for three different services or tools and have a certain level of in-house expertise to implement it. Nerdwise wanted to consolidate the whole process and put everything into one turnkey solution that was easy to install and use.
Also, most lead generation solutions are built for a team leader, like the head of marketing or sales. If you buy Marketo, for example, it’s bought and implemented top-down. Nerdwise wanted to build it for the salesperson.
Now Nerdwise makes it easy for companies to get their entire lead generation system up and running, implementing bottom-up solutions that help a sales team target and convert prospects. Rather than an outsourced partner that runs a one-off lead gen campaign, Nerdwise transforms the way a company goes to market and converts leads.
Nerdwise already had customers and a strong team, so the founders focused on revamping its operations and marketing strategy. Patrick and Michael documented all the lead generation and sales processes that could help their customers’ businesses grow. They didn’t know their ideal customer, so they reached out to companies in different industries.
Patrick says, “We told the best possible story about Nerdwise’s capabilities and the results we could bring businesses. We generated a lot of leads and customers quickly, essentially eating our own dog food when it comes to lead generation strategies.”
It took around six months before they could wade through all the data and figure out their ideal customer, price, experience, and so on. Nerdwise tweaked its offering along the way and slowly refined its target audience.
The founders searched for customers enjoying the most success with Nerdwise and then focused their marketing and sales on them. “One of the patterns we found is that the better a customer’s value proposition, the better they do with our sales and marketing program. Banks and VC firms, for example, have a clear value prop: offering capital to grow your business. We knew that Nerdwise could bring great results for these types of companies,” Patrick says.
Use Pricing to Fuel Growth
When Nerdwise first launched, it offered a free version of its product and customers could upgrade for $99 or $199 a month. About 600 companies were using Nerdwise, but only 50 were paying subscribers. The obstacle wasn’t lead generation or customer acquisition, but finding a customer that would pay to upgrade.
Patrick says, “We thought we’d make enough money from paying customers, but that wasn’t the case. When we pivoted Nerdwise, we also changed our price point in line with our new value prop and removed the free option.” Nerdwise’s price point now starts around $3,000 per month, which means it only takes a few customers for the company to make a profit. The company now makes millions in annual recurring revenue from 500 customers.
When it comes to pricing, Patrick says, “One of my favorite pieces of advice on pricing is that once you do all the math to figure out your product’s price point, including your costs and so on, you should multiply it by four. Founders tend to undervalue their offering, which limits financial growth. Of course, there’s also an ongoing journey of figuring out who your best customer is and what value you can bring them. You can price more appropriately for the market as you learn.”
Patrick also advises entrepreneurs to charge customers as quickly as possible. He assumed Nerwise’s free product would lead to more money in the long run. But it took the founders a long time to even be able to pay themselves a salary.
Interestingly, Nerdwise did reintroduce its free product. Its lead scoring dialer lets a sales rep connect their marketing system to their cell phone. When prospects show engagement, they can quickly jump on the opportunity. Now that Nerdwise is larger and more profitable, it can afford to take more risks.
Patrick says, “I could have launched Nerdwise in a way that would have driven cash flow much sooner and allowed us to grow quicker. Having a path to profitability and meaningful cash flow is extremely important. If I could go back in time, I would tell myself to go after B2B companies and sell the solution that I know I’m good at. I would have said to charge a lot more money and reinvest it into the business and expand our solution. It took me three years to figure that out, but here we are.”
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