A breakdown of how I built and sold my first business, and the personal things I learned along the way.

Passive income. The four hour work week. The dream. As a millennial there are few things that rank as desirable as finding a recurring source of income that doesn’t take much work (or a boss). In April of 2015 I decided to seek that out and build a side project that could pay my bills while I read books and traveled the world. Within a few months I achieved my dream and booked $5,000 in monthly recurring revenue.

It’s been almost three years since I started SimpleData, my passive income muse. I grew the business to $30,000 per month in revenue within six months, automated and delegated just about everything, and for all of 2016 I worked an average of 5-10 hours per week. My new freedom enabled me to spend five months living in Argentina and then Europe. It afforded me the time to study things like history, political science, and other liberal arts that I felt I missed after dropping out of college. This muse changed my life.

In January 2017—18 months after starting the business—I sold SimpleData. It’s hard to imagine what my life would look like today if I didn’t sit down at my computer one night back in 2015 and come up a plan to quit my job, make passive income and travel the world. This simple act put me on the path to financial independence and wealth. It gave me the time and money to volunteer and give back, which opened my mind to a set of questions I never thought to ask previously—about my responsibility to help people less fortunate than me, about the work that makes me happy, and what to do when those two things are in conflict. This path also led to depression, social isolation, and the hardest time of my life, which previously I’ve been hesitant to share (is there anything worse than a rich guy complaining about his life?).

I’m going to break down how I built and sold my business, including how I came up with the idea, found my first customers, scaled operations and found potential acquirers. I’ll also share some of the more personal things that I learned along the way and how I learned to calm some of the demons in my head.

1. Monetize your brain

The thesis of the project was simple: take what was in my head and monetize it. In other words, build a business that leverages all of the skills that I had learned over the first three years of my career in entrepreneurship, marketing and sales.

When I started SkyRocket — my last (failed) startup — I solved someone else’s problem which meant the time-to-market was significantly longer and the investment had to be much larger. I had to stay up late in the night reading industry journals just to be on the same playing field as my competition. In my second go-around I didn’t want to do that.

With that in mind I decided to solve a problem in the sales development space. At Highfive I made a name for myself as a “saleshacker” by applying some basic web scraping and front end development to my job. I had carved out a niche by applying what I knew about technology to sales. This was my unique skill, and I wanted to monetize it.

2. Find the pain

Finding a skill that I could use as leverage pointed me in the right direction, but in order to actually make money I knew I’d need more clarity. I needed the specifics of what problem I would solve, who I’d solve it for and how it would make money. And all of that could be found if I were able to answer a simple question: what do people in sales development need, and is there any pain in the current process of achieving that?

As I thought about problems to solve I remembered a story one of Highfive’s account executives told me. She was $5,000 short of quota (her quarterly revenue goal) and the only way to hit it was to email and call as many people as she possibly could to see if they needed video conferencing. In order to get that list of people she stayed up until 1:00 am and built a prospect list (a spreadsheet of people to reach out to). 1:00 am is painful. 1:00 am is opportunity for improvement.

When I took over the Sales Development effort at Highfive the first thing I did was hire a team in the Philippines to ensure I never had to stay up until 1:00 am building lists — or build any lists for that matter. I made a couple videos with instructions, bought some tools and found a virtual assistant on oDesk named Jonathan. For most sales development reps building lists can take two hours out of their day. I had eliminated it entirely.

When I put two and two together I realized that sales development outsourcing was an idea worth pursuing. If I could prevent salespeople from having an end of quarter frenzy like my co-worker, I could probably make a buck.

3. Competition isn’t always a bad thing

In March of 2015, I decided that I would build a sales outsourcing side project. The goal would be to provide a turn-key service for sales teams to request leads. But there was a problem with the idea: the market was highly competitive. Whenever I told people about what I was building they replied, “Oh something like [competitor].” Most people I spoke with told me I shouldn’t build the business for this reason. That’s when I learned play #3.

Most people in the tech industry are brainwashed by Silicon Valley group think. These people believe that every business must have a billion dollar opportunity. This isn’t true, especially for side projects. In fact, when pursuing the passive income dream competition is your friend. Let me explain.

Competitive markets are by their very nature mature markets. And the more mature a market, the less time and money a business has to spend educating that market on the problem. Think about real examples. Coca-Cola isn’t spending money on ads telling you why you should drink soda. They spend money telling you why Coke is better than Pepsi. Soylent — the future of food startup — on the other hand must spend money educating people on why they should drink their food. In order to succeed, Soylent will have to spend tens of millions of dollars and years in the market.

Creating a new soda to compete with Coke would take less time and money than creating a new food and beverage category entirely (like Soylent). Coke has spent billions educating people on why they should drink soda. And you could educate people on why they need to drink your soda. You could pick a small niche that Coca-Cola executives see as a rounding error ($1-10 million) Granted, the long term opportunity may be smaller. That’s besides the point. The passive income dream isn’t about making billions, it’s about making thousands per month and doing it quick.

So is it better to create a “future of food” side project or a soda side project? I put my money on the mature, yet competitive market.

4. Find a position in the market

By April I decided that competition wasn’t going to stop me from starting a sales outsourcing startup. But in the back of my head I heard the voice of one of my mentors — Highfive’s VP of Product Marketing. I recalled a lesson he gave me during a 1:1 at Backyard Coffee in Redwood City.

When you hear Volvo what comes to mind? Scandanavians, but more importantly you probably think “safe car.” How about Honda? Odds are “reliable car” came to mind. This is the basic idea of positioning. What comes to mind when people hear {company name}?

The concept of positioning is incredibly important when starting a business because it determines who will buy your product. A product with no positioning that sells to “everyone” is likely to sell to no one. That’s because people need to identify with your product and brand in order to buy.

To put this in context I’ll give an example of positioning in my life. I no longer buy Abercrombie and Fitch because they position themselves as the high end clothing brand for middle schoolers. I do buy from Urban Outfitters though because as Highfive’s VP of Sales liked to say, I’m a wannabe “urban hipster.”

Previously, I thought positioning was just another business school buzzword. But it’s important. At it’s core, positioning means “Pick a niche to get rich.” Isn’t the entire point of a side project to get rich?

In order to find a unique position in the market you must look at the competitive landscape. When I looked at the lead generation space I realized that companies fell into three categories:

Platforms: Data.com, Hoovers and DiscoverOrg are all examples of companies that charge annually for a set amount of lead exports from their platform. These databases are sold to thousands of companies which means everyone is emailing the same person. This results in worse response rates for their customer. And the average cost is about $30,000 per year (billed upfront). Ouch. Bad data for a high price.

Service-as-a-service: LeadGenius is an example of a company that charges annually for a team that prospects for you. Great concept, but their business model is built to work for them, not the customer. The cost is about $24,000 upfront ($2,000 per month billed annually). Not so great for a startup on a tight budget with changing business needs.

Freelancers: oDesk and Elance are examples of platforms where you can hire your own virtual assistant team to prospect. Customers have to train their team and the billing is variable so your cost per lead ranges from $.50 to $5. Cheap entry point, but time intensive and unpredictable.

I knew that there was an opportunity to create a turn-key service with a pricing model that customers could love. And thus, the first pay-as-you-go lead generation service was born.

5. Reverse the Way You Want to Sell

At the end of April a friend of mine introduced me to someone who needed help building prospect lists. After work one day I prepared for my first official sales call. Fortunately I had sold mobile apps in college, and helped develop Highfive’s first call deck so I was able to take what I knew and build a five step sales process (see play #1):

~2 min (Rapport): Ask how their day is going. Tell them how we were introduced and see if we have any common connections.

~1 min (Our value prop): Give a 30–60 second pitch on what value SimpleData offers. (Note: the goal isn’t to sell them. You want to assure them this call is worth their time and then ask them questions.)

~5–10 min (Context and qualification): Say the following: “I want to be respectful of your time and make the best use of it so I’d love to ask a few questions about what you’re looking for in order to steer the conversation in the best direction.” Then ask a series of “probing questions” that identify their pain points. Ask what products they currently use, what their sales and marketing goals are this year and how they currently go about building prospect lists.

~5–10 min (Solution): Explain how SimpleData fits into their current sales and marketing process, how it can help them hit their goals, and how it makes their prospecting process more efficient. The key here is that you pitch the product in their language. If they say they are under pressure to hit quota, emphasize that your product helps sales teams under pressure to hit quota. If you repeat their question in a statement you’re on the right track.

~5 min (Pricing and next steps): Tell them about our pricing and free trial program. Ask the prospect what would make a trial successful? In other words, what can I do to win your business?

It’s important to note that I didn’t do any selling until about halfway through the call. I speak with a lot of founders who have their first call process backwards. They get on the phone, build some rapport and then sell. Then they ask, “Does that sound like it will work for you?” This makes for an unpersonalized pitch that is hard for a prospect to relate to. When you say that you help small businesses do XYZ they think “We’re a mid-size company, so this won’t work.” Then the last half of the call is spent backpedaling and rephrasing your pitch.

I spent the first 15 minutes of my first sales call asking questions. When asked to describe SimpleData I resisted the urge to sell and instead offered a very high level value proposition. “SimpleData helps businesses spend less time doing busy work so that they can spend more time selling.” What person doesn’t want to spend less time doing busy work so they can make more money? My initial pitch was high level enough for anyone to relate to it. After this brief description, I peppered my prospect with questions that would give me the context to personalize a more in-depth pitch later.

Ultimately this sales process helped me land my first 5 customers. But you’re probably more interested in where I found them in the first place. That leads to Play # 6.

6. Get Scrappy and Do What You Know

When friends ask me where I found my first five customers I have a hard time describing it any other way than responding, “I was scrappy.” Paul Graham would call this Doing Things That Don’t Scale. Here’s what that meant for me and how it lead to $5,000 / mo in revenue.

As I mentioned, my first lead/opportunity came from an introduction. That was made possible when I took a couple friends (who are salespeople) out for drinks to tell them what I was working on. Afterwards they both said they would try to think of people to refer me to. My first customer closed two days after the introduction was made (referrals always have a shorter time to close). My first customer came from the simple concept of asking friends for help.

My next two customers came from a less obvious channel. A friend told me about a service called Growth Geeks and suggested I create a profile for my service. I was hesitant at first because it seemed like a distraction, but I signed up nonetheless. After receiving a couple marketing emails from the company I sent this email to the founder:

He responded that day and asked if I had time to speak on the phone. On the call I learned that he had a customer who needed 2,000 leads a month and they needed 2,000 leads a month for themselves. I used the same sales process as my first call and closed two deals in 30 minutes worth $3,000 / mo (25% of the $4,000 in revenue went to Growth Geeks). Suddenly I went from $1,000/mo to $4,000 / mo.

Later that week I decided it was time to double down on this side project. I spent a couple nights writing email templates and planning outbound email campaigns. By May of 2015 I had sent over 30,000 sales and marketing emails so I knew how to get high response rates (see play #1). I knew outbound email (also called direct sales) would be an effective customer acquisition channel. I also had experience with it so I spent all my energy over the next month on this channel.

I sent emails to about 500 people over the course of a month which resulted in ~20 free trial sign ups. Two of those free trials converted within the month and by the end of June I had $5,000 in booked MRR.

Many marketers (especially at startups) make the mistake of trying too many channels (social media, eBooks, webinars, paid ads, etc.) at once. The result is a lack of focus and steep learning curves. This delays what I’ll call time-to-ROI in a similar way that market maturity delays time-to-market. The marketer or founder would be wise to focus on a couple channels early and expand when one of the following conditions is met:

1. You have exhausted the channel (e.g. you’ve emailed your entire customer segment)

2. You have developed a repeatable process that can be executed by an employee or contractor.

In summary, here’s what channels those first customers came from:

Being scrappy — 3 customers ($4,000 / mo in revenue)

Outbound email — 1 customer ($500 / mo in revenue)

Content marketing — 1 customer ($500/mo in revenue)

7. Don’t Lose Perspective

The last play in this playbook isn’t about market positioning, sales technique or growth hacks to help you find customers. But I think it’s the most important play.

Late one night after reaching my first $1,000 / mo in revenue I received an email. It was from my first customer and immediately I knew it wasn’t good. I had sent him 100 leads that morning before work and he emailed me to inform me that nearly every one of them was outside of his ideal customer profile. For my business this is the equivalent of a 24-hour server outage. My heart rate increased, I felt my palms get sweaty, and I stormed into my room to investigate what happened.

Eventually I solved the problem, called my customer and refunded the $100. He wasn’t stressed at all. He realized he was an early customer and the road would be a bit bumpy. So while I was freaking out imagining the end of the world as I knew it, my customer was probably watching Netflix with his family.

That night I lost my sense of perspective. I had forgotten that this was a side project, that it was early stage, that all problems can be solved. And so I ruined one night of my life.

I’ve probably ruined 100 nights over the last three years due to similar problems — an email from my boss, a server outage during my last startup, rejection from an important prospect. In retrospect all of those problems were tiny and none of them were worth boiling my own blood over.

Today, I remind myself that work is a sport. It’s not life. Whether you’re working on a startup, side project or contributing to a larger company, the place where you work should be a place where you go to grow, interact with people, and have fun. It should never be a place where you experience unhealthy stress, anxiety or fear.

At the end of June 2015, with $5,000 per month in revenue and a new sense of confidence, I quit my job to work on SimpleData full-time.