A subscriber recently reached out with some comments regarding the investment approach I’m using for MicroAngel Fund I.
It was an intelligent message filled with thoughtful and relevant questions on the topic.
As I started writing out my answer and going deeper into detail, I realized I was writing a new post!
So here we are:
First of all, thank you Amitabh for taking the time to share your thoughts. I sort of glossed over those details and it’s very much worth having a conversation about this stuff.
Without a doubt, the biggest advantage of building in public like this is that I expose myself to the amazing ideas and feedback of people like you and Amitabh.
I’d like to believe having thousands of advisors will become a competitive advantage at some point.
As far as the growth approach goes, I’d say Amitabh is mostly correct.
I will probably spend 80% of my time inside the product improving what I think will have an impact on churn. Once that mission is complete, I’ll switch to 80% of my time building flywheels.
Probably worth noting that in the few days I’ve manned Intercom since the acquisition closed, there have been very few customer support requests. So it isn’t yet clear if there’s anything really driving down growth from a product perspective.
The support burden is so low — I don’t know yet if that means the product value delivery is really well-oiled or if I have a bunch of dormant users. Considering bookkeeping is, at minimum, a monthly activity, I have doubts about the zombie-user scenario.
I have a general idea of what needs tweaking, but so far, there’s some indication that the voluntary churn is likely as low as it’s going to be without introducing new integrations or features.
There are definitely some quirks to the product and it could use some polish. But those feel like $5 opportunities when compared to the integrations and features I could deliver.
My play is not to reinvest MRR into marketing the traditional SaaS way unless I have to. Instead, I will use my pedigree as a career growth marketer to effect tangible changes to the product to increase acquisition, retention and revenue expansion.
I’m a strong believer in product-led growth.
Product is the number one asset to huddle around. It’s so easy to have an authentic and real conversation when it’s centered around how the product might be used to make money or save time.
Even better if that benefit can be perceived on a recurring basis.
Here is the general approach I’m going to use to reduce risk in each of the key growth areas for Reconcilely.
Bearing in mind that I am one person on a 24 month mission, the scope of my work needs to be impactful and very limited.
I can’t afford to be spending time on stuff that is nice-to-have or intangible to the customer. Unless it helps increase installs, conversions or expansion, I’m not gonna do it.
I have a rough idea of what the “ignition stages” look like for the MicroAngel portfolio over a 2 year timeline.
Since I expect to be fielding the rest of my funds over the next month or two, I need to be aware of what my focus will be at every given stage of the fund’s lifecycle.
This way, I can ensure I’m hitting the ground running at each stage, stay the course, and exit on-time as planned.
To make things go according to plan, I’m designing my scope of work based on the different lifecycle stages for the fund, themselves based on the time left to maturity.
Each stage should last 3-4 months at the most. Unused months will carry over to the next stage.
Buying → Fixing → Improving → Growing → Roll up → Exit
The roadmap will become clearer as I write through it, but I’ve designed the fund so that the products I buy are all homogenous.
Even if I can’t necessary cross-sell between products, they all follow the same growth formula, which means I can treat my products and the required marketing to grow them as a conveyor belt of activities that are done together, by the batch.
If that mental model holds true, then I can reliably focus myself on the current lifecycle stage of the fund and execute within that scope and that scope only:
Buying → Spend 80% of my time prospecting + finding the best possible deals to invest into with my available funds, and do it fast enough to safeguard against the need to increase the required Monthly MRR Growth.
If I take too long to buy the products, I lose out on MRR that I’ll have to make up along the way.
Fixing → After I’m done buying the products, I’ll spend 80% of my time doing the “just fix it” stuff across the portfolio. Setting up analytics, setting up audiences, touching up branding, setting up collateral, ad templates, reviewing messaging, app listing touch ups (h/t for your work Daniel Sim, I’m a happy AppStoreAnalytics.io customer).
In this stage, I will build a basic growth model for each product and determine the OKR and KPIs responsible for revenue growth
One thing I’m currently exploring with the seller is an advisory role so I can reliably pull on them should the need arise.
Improving → With stronger ribs, assets to support my activities and a path to improving acquisition, retention and expansion, I will spend ~4-6 months executing against a focused backlog of improvements, marketing automation, new features and growth experiments.
The idea is to only work on items that increase the KPIs needed to accomplish the OKRs of each app. By the end of this 4 months period, I should have a polished product, key integrations, and a repeatable customer acquisition process.
Growing → The focus shifts to 80% marketing from the moment I feel the infrastructure is in a good place to deliver strong performance at the top of the funnel.
I’ll execute several acquisition channel experiments to test market/product fit and customer segment LTV from channels with a high affinity to my customers. The most likely outcome here is iterating Facebook/Instagram ads to a profitable clip.
By this stage, I hope to have unlocked enough excess MRR to be able to reinvest some of the MRR into ads. My general goal is a 3 month payback or better so the cashflow impact isn’t so huge.
Rollup → Maintain the pace on MRR growth, especially if a profitable customer acquisition flywheel exists and is available to scale. Begin implementing SOP and documenting the workflows of the product and how things are run.
This process should prepare the product for a hand-off at any moment. To me, that includes (i) a Notion space, (ii) a stacked Google Drive folder with SOP videos and documentation, (iii) marketing and sales reporting in place to satisfy any buyer requests for metric or data.
Exit → By the time I arrive at the exit stage, and because I’ve overbudgetted to secure as much MRR Growth up front as possible, there’s a strong chance I’ll already be posting a 2.7x paper return. That enables me to exit at any moment the right offer comes along.
In this final stage, 80% of my time is spent sourcing, navigating, negotiating and ultimately closing the asset sale of the portfolio as a whole. The odds of selling products one-by-one are slim to none.
The whole point is to roll-up products into one entity to end up with one main ARR number and a workflow that merges the engineering, marketing and support operations of the portfolio’s products into one cohesive machine.
While I may still be in the buying stage, it’s important I begin planning how MRR will accelerate.
Here’s a higher-resolution image for each of my 3 main focus areas to grow the Reconcile.ly app:
In a nutshell, customer acquisition is installs, and those will go up by increasing App Store rankings.
Ranking will increase by creating a review acquisition flywheel that captures positive reviews from customers successfully getting value from the product.
So far, the product has only managed to acquire 15 reviews from merchants using its product throughout its lifetime.
Thankfully, those reviews are all glowing, which gives me some confidence that I could compile a list of present customers who would be willing to share their experience on the App Store.
And the odds of acquiring mostly 5* reviews from that effort are pretty decent
That’s too hope-based though, so to be more deliberate about acquiring new reviews for the app, I’m going to keep track of happy customers and automatically remind them to leave a review when they reach a point of value delivery.
For example, in the application UI, when a user successfully exports payouts to Xero (a-ha moment), I can pop an Intercom message requesting them to share their experience on the App Store.
That way, I can have an install-to-review conversion rate, and observe positive ranking growth as a factor of my ability to drive new reviews from every x number of installs.
Beyond reviews, there’s a variety of channels I expect to go through to reach my customer. Since Xero is a product most heavily used in the Oceanic markets, I’m going to focus most of my energy in those geographies.
The advantage in doing that is that CPM and CPC costs tend to be a little bit lower in English-speaking secondary and tertiary markets like New Zealand, Singapore and South Africa.
Meanwhile, the UK and Australia are the main areas of interest since that’s where the volume lives.
The US runs on US-GAAP accounting principles (of course it does), and Xero’s not really the go-to solution in those cases.
That’s why it’s imperative for Reconcilely to introduce a Quickbooks integration. There’s likely some value in doing the same for SAGE as well, considering they are pivoting heavily to cloud and API-based design.
By introducing a QBO integration, I can extend the value proposition to the American and Canadian markets where the software’s market share is strongest.
On the topic of competition, there is much of it.
There are several important terms to rank for, but I’ve noticed that the same players tend to surface.
I’m going to be doing a more involved competitive analysis where the process will be to
take inventory of all the competitors in the space; and then
create a feature parity matrix to understand feature gaps I need to fill to start gaining more ground
I wrote a script to scrape the contents of the reviews (and reviewers) of a Shopify app to a CSV file:
I’ll use it on each of these competitors and export all of the data to a big spreadsheet for analysis.
From there, I’ll build up some word clouds to understand what kind of keywords surface most often inside of these reviews — be they positive or otherwise.
Importantly, I can also use this list to kickoff some initial outbound outreach. By collecting the reviews across all of my competitors, I’m likely to cover over 1,000 merchants with my reviews.
I’ll chase down these merchants and ask them to give Reconcile.ly a try. Considering it’s cheaper & more reliable, I hope to produce a decent success rate.
The only caveat here is I’m falling victim to the fact accounting app users don’t like to switch, and only do so when things stop working. We’ll have to wait and see how the outreach performs.
There’s a small brand refresh (mostly logo) to do, and then I’ll begin lobbying Shopify for a feature. You have a decent chance to get featured on a localized store (i.e. German App Store) if you bother to localize your app and its listing.
I definitely should explore this option, provided there exist non-English speaking markets who use Xero for their accounting needs.
Just another reason to get QBO going so I don’t have to rely on just one market and, on the opposite end of the spectrum, get a decent growth rate boost since more merchants discovering the app will be able to get value from it.
Lastly, there’s a big, untapped opportunity to take to Google, Facebook and Instagram and test what the cost of traffic would be.
Typically, you’ll find most marketers sending traffic to their product home page and hoping for the best. There’s a little bit of value in doing that since visitors on your domain can be later retargeted.
The only problem is you are double spending (once to bring them, then to retarget them) but not collecting.
Because real-time bidding platforms like Facebook and Google place a heavy emphasis on ad relevance, you’d needlessly penalize yourself vis-a-vis your ability to drive cheap clicks from social.
There’s a pretty clear playbook for profitably driving traffic:
Ensure the funnel ad users go through pays for the acquisition costs of the campaign, drive $ volume with a backend offer
Obviously, materializing something to that effect isn’t easy and there’s an infinite number of ways to go about it. McDonald’s uses the extra fries you grab with your main meal to pay for a bunch of stuff.
The idea is pretty simple: You want to change the conversation and initiate an authentic place from which to pitch your solution. The best way is by giving first.
And the best thing you can give is a job that is done. The JBTD framework is an incredible way to think about the real reason customers look for solutions to certain problems.
In the case of Reconcile.ly, the real job to be done for merchants is to go from this:
I hate bookkeeping.
If there’s one thing I can’t stand spending time on, it’s that. It’s a big part of why I bought Reconcile.ly. I have felt this pain and still feel it to this day, every month.
Most people on the Internet will give you an email in exchange for something that is somewhat useful to their current version of life.
Take advantage of this by creating an asset that you can deliver to anyone willing to consume it — in exchange for the right to communicate with them in the future.
This activity enables you to buy traffic instead of renting it.
You’re renting traffic if you buy it off of Facebook and then it leaves your website. If you need to retarget to bring them back, that’s rent you’re paying to Facebook to access their traffic.
Here’s an example ad campaign I’m likely to try a version of:
$1,000 ad spend on Facebook Ads
Ad Set: Download the Shopify+Xero Reconciliation Cheat Sheet to learn how to reconcile your Shopify payouts with Xero without losing your hair or your mind
Assume a $0.90 CPC because the product is educational and likely to elicit a curiosity-based response from feed scrollers
~1,111 clicks to landing page @ $0.90 CPC
Squeeze LP for downloadable asset, aim to convert 15%+ to opt-ins from the ad click. This is not only possible; it is the minimum standard for high performing landing pages.
That should yield 167+ emails with a 15% opt-in rate.
The page is simple: it has no layout or navigation. Only a main headline promise, an image, a list of benefits, and a text inbox box. Self-liquidating offers don’t need much to fly off the shelf.
Users opting in will be served a /thank-you page, which is the first time they will be asked to consider Reconcile.ly
Aim for a 10% take rate on the thank you page right off the bat, which should yield 17+ trials to the application.
Considering an LTV of $215+ and an install-to-subscribe conversion of approximately 35%, I can quantify the value of each trial at $75.25 per trial.
If I score 17 trials each worth $75 from my initial ad, that defines top-line revenue of $1,275 worth of trial conversions just from the initial top of the funnel.
Magically, I’ve acquired with $1,000 the following benefits:
17 new trials, 6 of which will become customers paying $215+
150 of the 167 emails which did not convert on the /thank-you page of the squeeze page will get a followup. It’s not uncommon to convert another 10% from the follow-up, which should double the net return from the campaign to 34 trial / 12 customers, or approximately $2.5k worth of LTV on my $1k spend
Effectively, I am profitable on the lead magnet basis, and drive most of the growth profitably with a backend offer (the product)
Customers effectively pay me to be acquired, rather than the other way around
There’s a lot of room for improvement in such a funnel, but it’s a great point of iteration from which to kick off.
I really like API/Integration products because no human needs to actively use it for value to be transferred.
Because of that, retention is massive -- robots don't churn unless their masters change the rules, which is rare with API integrations.
The app's onboarding is good, but not great.
There are several pitfall areas in the user lifecycle and within the user experience.
For example, customers would benefit from tools that further reduce any manual intervention in the case of a reconciliation conflict.
Right now, edited orders stall reconciliation because numbers don’t match up. If that happens, a merchant has to manually intervene, correct the discrepancy, then trigger the reconciliation once again.
There would be a big benefit to providing tools to automatically detect and solve these discrepancies without requiring of the user to go dig places for information. We should do that for them.
This will further engrain the product into their workflow without the user even having to actively use it to get value.
I've also noticed that most of the voluntary churn is due to a missing Quickbooks Integration.
That's the first thing I'll work to deliver.
Should be quick, considering the seller completed 60% of the work already! From there, I expect to improve retention further with activities doing:
front-end polishing to the app (I'm also a full stack engineer but my main forte is front-end work)
setting up some behavioural messaging.
I'll do these after setting up the analytics infrastructure, since you can't improve what you can't measure.
If you’re wondering, I usually default to setting up a Segment integration, and then piping data from Segment to one of the hundreds of apps they integrate nicely with, including Mixpanel, Amplitude, Facebook Pixel, Google Ads & Analytics, Hotjar, and so much more.
The advantage of going through Segment is that you only ever write the integration once. That data can then be sent to all of the tools you use at once, from the same source.
Pricing was never touched -- gonna be doing that as soon as revenue growth begins tapering off I think. The seller made some changes to pricing as early as 2 months ago, and I don’t want to be too aggressive here with the changes I want to eventually make.
Reconcilely is the cheapest solution among its competitors.
When appropriate, the plan is to increase prices by 5% per week (for new customers only, grandfathering all others on existing plans).
I'll analyze the conversion rates and continue increasing prices until new installs begin dropping.
That will likely have a big impact -- but I'll only do this after ringing in infrastructure, acquisition and retention improvements so the results of the revenue expansion can be compounded to match.
Finally, I expect to iterate the system which charges overages for processed orders beyond account limits.
If I can get creative about it, I could get revenues from overages to cancel out revenue churn and then we’re in business
Did I model a margin of safety?
Yes. Mostly. Sort of.
The portfolio needs to grow by $366 MRR, but I expect to be buying about $420 MRR across all of the products, as of now, based on my ongoing deal flow and negotiations.
It's not a big margin, but it's enough considering I will be actively applying changes that should have a strong impact on revenue retention, and thus revenue growth.
If I can't get the MRR growth, I'll have to double-down on the products and that will encroach on the hands-off benefit. I'm not about to buy products and let them die, obviously.
Were something to go wrong, I would do my best to address it. The advantage of having spent so long as a growth strategist is that I can reliably troubleshoot the cause of revenue stalling.
It’s just pattern finding, and I almost always find the culprit.
The game is just one big puzzle and I've become quite good at the 0 to 1 part of it. I even launched a bootcamp with GrowthHackers about it a year or so ago.
There’s only so much control I can have over the product and only so much influence over the events that will transpire to impact growth.
I can show up every day, make sure the right decisions are taken, and make moves that help move towards the next milestone.
As of yet, the focus is on maintaining growth rather than increasing it.
As I become more confident navigating the product’s code and delivering support to customers, I’ll have a better handle on how and why I’ll approach my roadmap.
That is the next thing I’ll build for a super-focused 18 months pushing for MRR growth.
Any operational failure must be reflected on the IRR as much as possible as the primary function of the first fund is cashflow.
This strategy would be totally different in an LP fund that focuses exclusively on IRR... though I expect Fund II will be comprised of LPs who think like I do and want to build a cashflow machine that is still profitable on an IRR basis, if not as aggressive as pure angel investing.
I could very much hardball my entry price and stay relevant as a buyer because my investment is not only reasonably liquid — I can get out within 30 days pretty fast — but I've already created guaranteed IRR due to the buying price.
Buying at 2.5x allows me to immediately turn around and sell for 3.5x+ to a hungry buyer, via a broker like FE International, for example.
Hopefully that gave you a clearer idea of how I think about risk hedging.
There’s still a lot of space for improvement, but I’m giving my brain a week or two to absorb as much as I can before planning the next several months, hunkering down, and making it happen.1
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