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Justin and Jason discuss their experience with the daily format, how a tweet from Jason Calacanis spiked the subscriber numbers, implementing recurring payments using PayPal reference transactions, using Forkly to facilitate a viral launch, the secret to hitting the Hacker News front page and why you need to build a brand.
I’m curious about how billing has worked for you guys. For example, is it difficult for a typical startup to get a merchant account with a major credit card company? For PayPal and CC companies, how much of an issue are chargebacks in practice? For selling a piece of software, money back guarantees in some sense don’t cost you anything (or at least not much).
But, what about when your have high costs per user relative to what they pay? For example, imagine that you have a company that applies machine learning algorithms in an automated fashion to user data. Now, if the data is large and the calculation is computationally hard, then you might use EC2 to create a virtual cluster to solve the user’s problem. If you offer them a money-back guarantee and they use it (the result wasn’t what they expected, even if it was right, they just decide they don’t want to pay), then you’re out the money of those instances. Here, the prices might still be relatively cheap, so you can absorb the costs. But, imagine if you were paying people to provide a service. For example, any matchmaking service. Suppose you provide a technical document outsourcing service where you find contractors (that you screen) to write technical documentation for companies. Once you get a job and you hand it off to the contractor, the contractor has to paid. Do you make their pay contingent on the satisfaction of the customer?
Generally, any thoughts on whether money back guarantees work for services as compared to products? Given the threat of charge-backs and bad word of mouth, and lack of brand recognition (why should the customer trust you) when starting out, is there really any choice?
Or, is this just something where it’s not a good niche for a bootstrapper to get into because they will have to eat these costs initially until they grow large enough that if they are providing a good service then the profits from most users will offset the losses from the edge cases?
William, you definitely don’t want to do something like that using PayPal. PayPal can lock your account (with all your money) at their total discretion. Moreover, in case of any dispute they can withdraw the money from your bank account linked to PayPal to cover disputed charges. And usually PayPal takes buyer’s side in most disputes.
I would say money back guarantees work very well for software products. In 7 years of running our business we had maybe 10 returns when customer said ‘I don’t like it and want my money back’. If it’s a technical problem and we can’t resolve it, we apologize and issue a refund. Refunds cost us a little bit but customers are happy and that’s what we’re after.
If you provide some-kine of service and refunds are too costly, you could try some kind of satisfaction guarantee. If your customer is not satisfied with the work, you will fix/re-do it for free. Then you can tell pressure your contractors to fix whatever he did.
In any case you should have high enough margins to absorb occasional refunds/charge-backs.
Congrats on the traffic, and mentions from Jason Calacanis and bloggers.
Haha… “Good Cop, Bad Cop”, that’s a great description for @Justin and @Jason
Looking forward to the long format shows, I missed em.
Jason and Justin, just a quick note to say that it was courageous for you to try the daily format for a week. So kudos there.
It must have been pretty stressful to follow the daily pace. I know for me it was hard to stay on track every day plus I missed the long format.
I was a bit surprised you felt it was better to automate the periodic billing using reference transactions rather than adopting the full subscription model. Also by doing that customers can no longer view the details of their subscription as well as the payments. And then customers who over time forget what a specific transaction is part of only see an individual payment as opposed to a true subscription. It would be interesting to get some Paypal expert on the show to discuss this as this is a critical foundation for some startups.
As an aside about a year ago I collaborated on an extension to the ruby-paypal library to provide minimal support for subscriptions. I have since developed my own add-ons around that to make it easier as well as to be able to test it in the Paypal test environment. I can definitely attest that this wasn’t a walk in the park but the overall PP subscription model seemed pretty solid.
So maybe a show on payment options could be very interesting for all listeners.
@Philippe Monnet -The main reason is because I’ve found (at great expense) that paypal subscription _regularly_ fails and Pluggio ends up loosing money. If I had the CC details then the failures would be far fewer. Also it’s much easier to allow the customer to change plan pricing without needing to do anything other than click a radio button 🙂
Very deep insights in this one. Really enjoyed listening.
I think you guys gotta stick to your strengths:
* Discussing different business models
* DISCUSSING MARKETING
* DISCUSSING MARKETING
* Aliens and UFOs
My 2c (which, incidentally, is worth about 0.00000002c from 1912)
Hi guys,
I would also find it useful if you guys could put together a show on payment options. The advantages of electronic services such as google checkout and paypal as compared to getting a merchant account and using a service such as chargify (or others) for monthly building. Whether there is any data on the actual rates of paypal locking accounts (or is it FUD)? Is there usually any need for the usual trappings of business (business insurance, liability insurance), etc. What about the need to do trademark searches, etc.? Do many startups bother forming an LLC? Many traditional books on starting a business suggest retaining a lawyer and an accountant. To what extent do these suggestions usually apply to internet startups? These are questions that as a potential bootstrapper that I’m trying to answer and I’d be curious to learn what solutions others have come up with.
Thanks,
William
(Justin, I really appreciated your transparency with Pluggio)