We’ve been growing our infrastructure (see this post) and our team (just hired another developer this week!) and today we’re happy to release one of the big things our merchants have been asking for to more easily manage their businesses.

Customer Invoicing

Now you can use Chargify to manage your customers who want to receive an invoice and then pay you by sending a check, a wire transfer, or a bag of gold!

Until now, we’ve been all about managing your business and your customers who pay by credit card.

But over time, a lot of our merchants end up needing to bill some customers by credit card and other customers by invoicing them.

They need to send an invoice to their customer, then collect payment outside of Chargify (usually a check in the mail), and then record that payment in Chargify (which can be a full payment or a partial payment, or sometimes the freedom to just discard an invoice without payment, usually due to some discussion with their customer).

Manage your recurring credit card and invoiced customers in one place!

Invoiced Customers are Usually Larger Customers

As Chargify merchants grow, especially the B2B ones, some find that 75% of their customers pay with credit cards, yet 75% of their revenue comes from their invoiced customers. I asked one merchant what his average credit card customer pays and what his average invoiced customer pays.

His answer: $100 (credit card) and $5,000 (invoiced).

He really wanted to manage both sets of customers in Chargify, and now he can.

Example Merchant

Let’s imagine a merchant that offers an online system to help medical offices manage their patients.

They start out reaching small medical offices that are willing to try something new. Those customers are happy to pay with a credit card. Let’s say the average monthly charge is $200 (base fee plus some per-user fees).

As the merchant grows, they start selling to chains of medical offices and eventually to small hospital groups. They start running into customers who want to pay monthly or quarterly and those customers want to receive an invoice and then send payment by check or wire transfer after 30, 45, or 60 days.

More Reasons for Invoicing

And there’s a reason the merchant likes this, too: those hospital groups are paying $5,000/mo for the merchant’s wonderful software. Our merchant can keep a lot more money by receiving a check or other form of payment from a trusted customer. Although a credit card means faster funds, it also means losing roughly $200 on that sale every month. If you trust your customer to pay, and you can wait 30-60 days to get paid, that adds up to more money in your pocket over the year.

And one last thing is the issue of certain larger customers not accepting credit card purchases above some limit, say $1,999, and wanting such purchases to go through their accounts payable process if you want their business. You won’t lose their business over this - you’ll find a way to send them invoices if that’s what they require! But now it’s far easier because Chargify manages both types of customers.

Invoicing is available on our "Small Business Plus" plan

Invoicing is available on our $169 "Small Business Plus" and higher plans. (Note: when it came out, invoicing was only available on our $459 and higher plans, but we decided to make it available on the $169 plan later.)

Invoicing is also available on our $0 Test plan so people can see it before they buy.  (And, of course, we have a 30-day money-back guarantee, so you can even get your money back if you try it and don’t like it.)

Please let us know if you have any questions, and definitely let our Support folks know if you encounter any problems.  This is a big feature that touches many parts of our app - we’ve tried to test for just about everything, but we may have missed something.

More Info / Documentation

Here’s the documentation for Invoicing.

Happy (billing) trails

Economies of Scale Start to Kick In

We process about 3 times as many subscriptions today as we did a year ago.

And while we’ve invested in much better infrastructure (3 Amazon availability zones), our infrastructure costs have fallen on a per-subscription basis.

This allows us to charge less as our merchants grow.

Lower Overage Fee on $459 Plan

Old:
Our $459 plan had an overage fee of 99 cents per customer when a merchant grew past 2,000 customers.

New:
We’re lowering that fee to 69 cents. A merchant with 2,500 customers saves $150/mo.

New Big Plans

Old:
Our $1,299 and $1,699 plans had overage fees of 21-29 cents per customer when a merchant grew past 10,000 customers.

New:
We’re introducing larger plans for merchants with 10,000, 25,000, 50,000, and 100,000 customers.

Merchants with moderate-to-large numbers of customers can get their per-customer fee down to 13 cents, 10 cents, 8 cents, and even 7 cents per month. And the overage fees are the same (they used to be different).

With the new adjustments, a merchant with 15,000 customers saves $800/mo and their per-customer cost is just 13 cents per month.

And merchants with a really large number of customers (say, 50,000+) can grow on Chargify and really benefit from economies of scale, getting down to 7 cents per month.

See the new big plans here.

What’s Ahead?

As we grow, we hope to broaden these price reductions.

I’ve had conversations with many business owners over the past 3 years, and even longer if I go back to my Engine Yard days. Probably literally something like 300-400 conversations - on the phone, in email, over coffee, at conferences, etc.

And there’s a recurring story: in general, businesses that only receive $5/mo from their typical customer are hard on the employees and owners.

There’s just not enough money to pay everyone well and to afford things the business needs. And if you think you’re going to grow your way to prosperity, think again… in most cases, growth just brings more problems. If you’re losing money on 1,000 customers, you’re probably going to lose money on 2,000 customers, but you’ll be losing more money! Sure, there are economies of scale, but they tend to diminish after a certain point. (And if you want to be Jeff Bezos and run on really thin margins, that’s cool, but just remember that Jeff Bezos is very unusual and it took a boatload of money to get there.)

It’s of course different if you have capital to cover losses for a number of years, or if you’re just adding a new product or service to an existing healthy business and you just want a new revenue stream atop many others.

If you don’t have VC or cash flow, pick a different opportunity - one that pays more per customer.

Happiness Seems to Start Somewhere around $20/mo

The happy business employees & owners I speak with are charging at least $20/month, and it just gets better as they hit an average of $30 or $50 or $100 or $200. We even have merchants who charge their customers $500 or $1,000 per month.

(An interesting thing to do, btw, is to compare whatever you’re offering to what people pay for common services like cable TV, cell phone service, and lawn mowing… is your service more useful/valuable than lawn mowing? If you’re helping them do something valuable, it should be a no-brainer.)

Of course these businesses are happy, right? They’re getting $100 or $500 or $1,000 a month. But remember, the fuzzy line between stress and relative happiness seems to be as low as $20/mo. Of course, as the average gets up into the hundreds or thousands of dollars, things seem to get a lot nicer , but I also assume their customers get more demanding at really high prices. I have to assume there’s actually an upper limit to happiness, where customers become so demanding that happiness starts to decrease.

Sell to Professionals or Businesses

At higher prices, you’re probably not selling to consumers, or if you are, it’s not something “light” or optional. I had a business years ago selling ringtones - talk about frivolous! Our average sale was $5. We eventually had a big problem with fraudulent charges and chargebacks, and each chargeback cost $25. That business didn’t make it. Not only have I witnessed many such businesses, but I’ve also been there, done that.

The vast majority of happy business employees & owners I’ve spoken with over the years are selling to professionals or businesses.

They provide a service that helps doctors, lawyers, software developers, restaurant managers, auto dealerships, insurance agents, real estate agents, truck fleet owners, property owners, plumbing contractors, heating & air conditioning companies, etc.

Their customer is someone who doesn’t mind paying a moderate/decent amount for something that adds real value & utility - it helps them get more customers, schedule patients, keep track of legal processes, manage & close more deals, manage rental properties, work better with other team members, manage code, etc.

Find a Good Niche

Now, you might wonder, how do these merchants find their markets? A lot of the time, they’re connected to the market in which they offer a solution… or they know someone who is. For instance, an attorney recognizes a pain point and forms a company with his friend who’s a software developer. We’ve seen this many times.

Some niches are already filled with good competitors, but some are not. Finding one and then analyzing the opportunity is the hard part, because we don’t know what we don’t know. I never knew that a market exists for fleet management software until 2 years ago. So I think the hard part is knowing about the opportunity in the first place. But I’m sure there are people who stumble onto these opportunities, too.

Hard Work for Little Money, Hopefully Not Forever!

That’s okay, and expected, when you start a business. But you don’t want to stay there, right?

Back to the $5/mo business for a second… think of how many customers you’ll need just to pay yourself a moderate salary. And what about paying a software developer or two, and some support people, and people to do marketing & bookkeeping.

If you’re like most entrepreneurs, you’ll do most/all of this yourself for awhile, but there’s a real danger that you’ll work yourself to death and you still won’t have enough customers to “make it”. You’ll want to hire someone else to write software or do marketing, but you won’t have enough revenue to pay them. You’ll feel pressure to shave every penny of costs, to hire the least expensive contractors, etc.

I spoke to a guy last month who has 2,000 customers and revenue of $10K/month. He’s stressed because he’s trying to support 2,000 people but his revenue can barely pay a salary or two in the USA, plus he’s got some servers to pay for, and a little bit of marketing/PPC, etc.

At $5/mo each, you’ll need 10,000 customers to cover a moderate business expense structure in the USA (a handful of employees, health insurance, marketing… all the usual stuff). With a $5 monthly average, you’re almost certainly selling something relatively optional to your customers, so you’ll probably have high churn (this has been echoed by several people who tweeted back to us since we posted this blog post). And the costs to get 10,000 customers will be pretty high. Word of mouth and freemium only go so far. I know some ideas catch fire and go viral, and there are some famous people & companies who are gods of viral/low-cost/free customer acquisition, but that’s the exception, not the rule. Most businesses require investment of time & money to reach customers… at least basic stuff like Google AdWords. Getting to 10,000 paying customers is not easy for most businesses - it will take time & money.

Better Business with Fewer Customers

Now, consider the same story if your average customer pays you $100/mo. Instead of needing 10,000 customers, you only need 500 customers.

It’s much easier to find & communicate with 500 customers, because those 500 are probably much more targeted. Are they in a certain profession? Or maybe they own a specific type of business or asset? You can find them much more easily. And you can listen to them and focus on their needs.

And guess what? Your business with 500 customers will be quieter and calmer, and probably have a lower expense structure. Fewer customers to support, same revenue, and probably better paid employees & owners.

Financing Your Business

Now, I know there are many nuances to this whole discussion. Maybe you want to build Dropbox or Amazon or whatever. Line up some patient capital.

Most people can’t or won’t take that path. Most businesses get off the ground with capital or cash flow provided by the founders and/or friends & family.

For that majority, the advice from those 300 conversations is: offer a product or service worth enough to build a good business with little outside cash. Offer something worth at least $20/mo and preferably more.

(Note that it’s unreasonable to assume you can start a business and get it profitable with no capital or cash flow from somewhere. You will need cash or a day job or something/someone to pay the bills while you get going. But you don’t need a formal angel investor or a venture capitalist to get started. Most people start businesses with money from themselves and friends & family. You might later take money from someone more formal to grow the business - that’s exactly what we did when Chargify took angel investment from Mark Cuban two years after we started.)

As you build up your business, your experience, and hopefully some personal assets, then you can go after larger markets that may take longer to turn a profit. Along the way, you’ll build experience and reputation that will help if you later decide to take outside capital.

Summary

Don’t sell something for $5/mo unless you can lose money for a long time in the hopes of dominating a large market.

Do sell something for $20 or $50 or $200/mo that can actually provide a decent living for the people working in the business. If you take money later to grow it, great! A growing business that’s profitable is better in so many ways.

If my last 300 conversations are any guide, you will be happier!

Can Chargify Do It?... Yes!

In sales calls, we occasionally get asked how (or even if) the caller can run a business on Chargify that’s uses “100% metered billing” or “100% usage-based billing” or “variable price billing”. Sometimes they describe their business as, “I charge my customers a different amount every time.”

What they usually mean is a business like Amazon Web Services… you only pay for what you use. No other fees, period. You get billed once a month, but only for what you used, which might be zero, or 78 cents, or 210 dollars.

They don’t think of it as a recurring revenue business, because the amount is not the same for every billing cycle.

But it is. And it’s easy with Chargify.

Once I explain it, I can sense their eyes opening wider and a smile coming to their face. I really love discussing business models and pricing models and helping a developer or business owner or product manager discover how they can set up the model they want.

How It’s Done

This business is a recurring revenue business, but the amount charged is completely variable, starting with zero as a possible amount.

Chargify makes this pretty simple:

1. Set up a product that recurs every month, or every week, or every 3 days, etc. Whatever time cycle makes sense in your market. And set the product price to $0.

2. Set up a Metered Component to capture the unit cost of whatever you’re selling. For instance, if you’re selling CPU hours, then create a metered component called “CPU Hours” and define a price list for it. Make as many components as you need!

3. Subscribe your customer to the product.

4. Tell our system when your customer uses CPU hours. You can do that manually or via API calls. You can do it each time an hour is consumed, or you can wait and just tell us daily or whatever.

5. Chargify will generate a bill each month/week/day/whatever. Your customer will be billed for exactly the hours they used. If they used none, they will be billed $0. And if you don’t want them to receive statements/receipts for $0, you can tell our system not to send them if the amount due is $0.

6. Let the money roll in!

What if You Can’t Trust Your Customers to Pay a Large Balance?

Some markets require that you bill customers more often. We’ve seen this a fair number of times.

“My customers will get real estate sales leads that are worth $50 each. What if they take 4 a week but I don’t bill them for a month? I could be out $800 and the leads can’t be resold.”

There’s an easy answer… Tighten the billing cycle.

We have merchants that bill their customers every day.
Or every 3 days.
Or every week.

You can set up a billing cycle that’s defined as ‘x’ days or ‘x’ months. That allows almost anything you can think of.

So with those real estate leads, set the cycle to 3 days or 5 days. That way, you can never lose much money.

And remember, if the customer took no leads, then the bill will be $0, and if you have Chargify set to supress $0 totals, then your customer won’t even know that a bill was ever generated and they won’t be bothered by receiving a $0 statement or receipt.

Hungry for More?

Our Components allow a lot of interesting billing scenarios for metered units and user-license billing. Think of text messages and software licenses. There are many more.

And you can set up intricate pricing of those units: things like volume discounts and tiered pricing. The first 100 units might be $50 each, but the next 100 units might be $40 each.

If this whets your appetite for interesting billing scenarios and interesting business ideas, learn more about Chargify Components.

About 7 months ago, we decided that we needed to hire someone to focus on making our infrastructure better.

And we not only needed a better version of what we had, but we also needed to create a better architecture for the future, one in which Chargify and our merchants’ businesses could rely on multiple data centers in geographically diverse locations.

We hired Drew Blas (@drewblas) in July, 2012, and he’s been working on these goals ever since.

With his work and help from much of our tech team, the system has gotten a lot better (faster, more stable) than it was a year ago.

And then a few days ago, we took a big step forward: we moved Chargify to new data centers, and we added the first layer of geographic diversity in a plan that includes more in the coming months.

It’s all part of our long-term plan to support our merchants and their customers with systems that run more efficiently and with less risk from data center problems and natural disasters.

I’m very happy to say that this big Saturday change was very uneventful (which is not an easy task - thanks Drew, Michael, Nathan, Kori, and everyone who was part of it in the wee hours Saturday morning).

Here’s a summary of the past, present, and future:

Phase 0:  2009 to Now

For the past few years, the Chargify app and database have been hosted at a PCI-specialized hosting provider in Kansas City. This system includes multiple web servers, “job” servers (like emails and webhooks), and database servers (master & replica).

This system is still running, but we moved all active processing to new systems on Saturday, December 1st.

Phase 1:  December 1, 2012

The Chargify app and database are now hosted at 2 locations within Amazon’s AWS hosting service.

Each installation of our system includes the same number of web servers and job servers as our Phase 0 system.

Basically, we doubled everything and spread it across 2 locations. This reduces the risk inherent in depending on 1 installation and 1 data center (almost every data center has failures now and then).

More Details:

We’re in 1 AWS “Region” (US-West-2, Oregon)

Within that region, we’re installed in 2 “Availability Zones”, each of which has its own complete Chargify installation, along with completely separate data center facilities (power, cooling, networking, and connection to the world).

These installations may be in the same building or in separate buildings, but even if separate buildings, we believe that Amazon uses locations that are close to each other. We see this as lower risk than where we used to be (in 1 building), but still prone to risk from a natural disaster in the general area.

Regarding our database systems, each new Chargify installation has 1 database server (no replica), but each installation acts as a backup or replica for the other installations. My old friend and Engine Yard co-founder, Tom Mornini (@tmornini) told us about something called Continuent “Tungsten” earlier this year, and it makes a lot of database magic possible. That’s about all I know!

Phase 2:  January, 2013

We’ll add a 3rd Chargify installation in another Availability Zone (still in the same Region as Phase 1). This will be an incremental improvement - better, but still exposed to risk from a large disaster in Amazon’s US-West-2 Region (ie, a widespread and lasting power outage). Certainly unlikely, but not a risk we want to accept for very long.

Phase 3:  February, 2013

We’ll repeat Phases 1 & 2 in another AWS Region (probably US-East-1, Virginia). Then we’ll really feel safe! We’ll have 6 copies of Chargify running: 3 on the US West Coast and 3 on the US East Coast.

Not only will this offer really high redundancy in case of failure or disaster somewhere, but it will also allow us to do more interesting things, like sending web traffic to the closest data center, which should make your and your customers’ experience a little bit better.

We’re pretty excited about this, because even though it’s not visible and perhaps it’s even “boring”, it’s boring like a good water system is boring - boring is good!

And like a water system, this kind of thing is an investment. It’s one of the reasons we raised prices earlier this year.

We’ve released sexier, more visible things recently, and more are in the works, but solid infrastructure is one of the things we think our merchants will really appreciate over the long term.

If you have any questions or you notice something not working right that might be related to our move, please contact our Support team. We definitely want to work out any kinks or bugs that may arise from the move.

Thanks.

—- Lance Walley, co-founder/CEO
—- lwalley@chargify.com

We’ve been growing our infrastructure (see this post) and our team (just hired another developer this week!) and today we’re happy to release one of the big things our merchants have been asking for to more easily manage their businesses.

Customer Invoicing

Now you can use Chargify to manage your customers who want to receive an invoice and then pay you by sending a check, a wire transfer, or a bag of gold!

Until now, we’ve been all about managing your business and your customers who pay by credit card.

But over time, a lot of our merchants end up needing to bill some customers by credit card and other customers by invoicing them.

They need to send an invoice to their customer, then collect payment outside of Chargify (usually a check in the mail), and then record that payment in Chargify (which can be a full payment or a partial payment, or sometimes the freedom to just discard an invoice without payment, usually due to some discussion with their customer).

Manage your recurring credit card and invoiced customers in one place!

Invoiced Customers are Usually Larger Customers

As Chargify merchants grow, especially the B2B ones, some find that 75% of their customers pay with credit cards, yet 75% of their revenue comes from their invoiced customers. I asked one merchant what his average credit card customer pays and what his average invoiced customer pays.

His answer: $100 (credit card) and $5,000 (invoiced).

He really wanted to manage both sets of customers in Chargify, and now he can.

Example Merchant

Let’s imagine a merchant that offers an online system to help medical offices manage their patients.

They start out reaching small medical offices that are willing to try something new. Those customers are happy to pay with a credit card. Let’s say the average monthly charge is $200 (base fee plus some per-user fees).

As the merchant grows, they start selling to chains of medical offices and eventually to small hospital groups. They start running into customers who want to pay monthly or quarterly and those customers want to receive an invoice and then send payment by check or wire transfer after 30, 45, or 60 days.

More Reasons for Invoicing

And there’s a reason the merchant likes this, too: those hospital groups are paying $5,000/mo for the merchant’s wonderful software. Our merchant can keep a lot more money by receiving a check or other form of payment from a trusted customer. Although a credit card means faster funds, it also means losing roughly $200 on that sale every month. If you trust your customer to pay, and you can wait 30-60 days to get paid, that adds up to more money in your pocket over the year.

And one last thing is the issue of certain larger customers not accepting credit card purchases above some limit, say $1,999, and wanting such purchases to go through their accounts payable process if you want their business. You won’t lose their business over this - you’ll find a way to send them invoices if that’s what they require! But now it’s far easier because Chargify manages both types of customers.

Invoicing is available on our "Small Business Plus" plan

Invoicing is available on our $169 "Small Business Plus" and higher plans. (Note: when it came out, invoicing was only available on our $459 and higher plans, but we decided to make it available on the $169 plan later.)

Invoicing is also available on our $0 Test plan so people can see it before they buy.  (And, of course, we have a 30-day money-back guarantee, so you can even get your money back if you try it and don’t like it.)

Please let us know if you have any questions, and definitely let our Support folks know if you encounter any problems.  This is a big feature that touches many parts of our app - we’ve tried to test for just about everything, but we may have missed something.

More Info / Documentation

Here’s the documentation for Invoicing.

Happy (billing) trails

Economies of Scale Start to Kick In

We process about 3 times as many subscriptions today as we did a year ago.

And while we’ve invested in much better infrastructure (3 Amazon availability zones), our infrastructure costs have fallen on a per-subscription basis.

This allows us to charge less as our merchants grow.

Lower Overage Fee on $459 Plan

Old:
Our $459 plan had an overage fee of 99 cents per customer when a merchant grew past 2,000 customers.

New:
We’re lowering that fee to 69 cents. A merchant with 2,500 customers saves $150/mo.

New Big Plans

Old:
Our $1,299 and $1,699 plans had overage fees of 21-29 cents per customer when a merchant grew past 10,000 customers.

New:
We’re introducing larger plans for merchants with 10,000, 25,000, 50,000, and 100,000 customers.

Merchants with moderate-to-large numbers of customers can get their per-customer fee down to 13 cents, 10 cents, 8 cents, and even 7 cents per month. And the overage fees are the same (they used to be different).

With the new adjustments, a merchant with 15,000 customers saves $800/mo and their per-customer cost is just 13 cents per month.

And merchants with a really large number of customers (say, 50,000+) can grow on Chargify and really benefit from economies of scale, getting down to 7 cents per month.

See the new big plans here.

What’s Ahead?

As we grow, we hope to broaden these price reductions.

I’ve had conversations with many business owners over the past 3 years, and even longer if I go back to my Engine Yard days. Probably literally something like 300-400 conversations - on the phone, in email, over coffee, at conferences, etc.

And there’s a recurring story: in general, businesses that only receive $5/mo from their typical customer are hard on the employees and owners.

There’s just not enough money to pay everyone well and to afford things the business needs. And if you think you’re going to grow your way to prosperity, think again… in most cases, growth just brings more problems. If you’re losing money on 1,000 customers, you’re probably going to lose money on 2,000 customers, but you’ll be losing more money! Sure, there are economies of scale, but they tend to diminish after a certain point. (And if you want to be Jeff Bezos and run on really thin margins, that’s cool, but just remember that Jeff Bezos is very unusual and it took a boatload of money to get there.)

It’s of course different if you have capital to cover losses for a number of years, or if you’re just adding a new product or service to an existing healthy business and you just want a new revenue stream atop many others.

If you don’t have VC or cash flow, pick a different opportunity - one that pays more per customer.

Happiness Seems to Start Somewhere around $20/mo

The happy business employees & owners I speak with are charging at least $20/month, and it just gets better as they hit an average of $30 or $50 or $100 or $200. We even have merchants who charge their customers $500 or $1,000 per month.

(An interesting thing to do, btw, is to compare whatever you’re offering to what people pay for common services like cable TV, cell phone service, and lawn mowing… is your service more useful/valuable than lawn mowing? If you’re helping them do something valuable, it should be a no-brainer.)

Of course these businesses are happy, right? They’re getting $100 or $500 or $1,000 a month. But remember, the fuzzy line between stress and relative happiness seems to be as low as $20/mo. Of course, as the average gets up into the hundreds or thousands of dollars, things seem to get a lot nicer , but I also assume their customers get more demanding at really high prices. I have to assume there’s actually an upper limit to happiness, where customers become so demanding that happiness starts to decrease.

Sell to Professionals or Businesses

At higher prices, you’re probably not selling to consumers, or if you are, it’s not something “light” or optional. I had a business years ago selling ringtones - talk about frivolous! Our average sale was $5. We eventually had a big problem with fraudulent charges and chargebacks, and each chargeback cost $25. That business didn’t make it. Not only have I witnessed many such businesses, but I’ve also been there, done that.

The vast majority of happy business employees & owners I’ve spoken with over the years are selling to professionals or businesses.

They provide a service that helps doctors, lawyers, software developers, restaurant managers, auto dealerships, insurance agents, real estate agents, truck fleet owners, property owners, plumbing contractors, heating & air conditioning companies, etc.

Their customer is someone who doesn’t mind paying a moderate/decent amount for something that adds real value & utility - it helps them get more customers, schedule patients, keep track of legal processes, manage & close more deals, manage rental properties, work better with other team members, manage code, etc.

Find a Good Niche

Now, you might wonder, how do these merchants find their markets? A lot of the time, they’re connected to the market in which they offer a solution… or they know someone who is. For instance, an attorney recognizes a pain point and forms a company with his friend who’s a software developer. We’ve seen this many times.

Some niches are already filled with good competitors, but some are not. Finding one and then analyzing the opportunity is the hard part, because we don’t know what we don’t know. I never knew that a market exists for fleet management software until 2 years ago. So I think the hard part is knowing about the opportunity in the first place. But I’m sure there are people who stumble onto these opportunities, too.

Hard Work for Little Money, Hopefully Not Forever!

That’s okay, and expected, when you start a business. But you don’t want to stay there, right?

Back to the $5/mo business for a second… think of how many customers you’ll need just to pay yourself a moderate salary. And what about paying a software developer or two, and some support people, and people to do marketing & bookkeeping.

If you’re like most entrepreneurs, you’ll do most/all of this yourself for awhile, but there’s a real danger that you’ll work yourself to death and you still won’t have enough customers to “make it”. You’ll want to hire someone else to write software or do marketing, but you won’t have enough revenue to pay them. You’ll feel pressure to shave every penny of costs, to hire the least expensive contractors, etc.

I spoke to a guy last month who has 2,000 customers and revenue of $10K/month. He’s stressed because he’s trying to support 2,000 people but his revenue can barely pay a salary or two in the USA, plus he’s got some servers to pay for, and a little bit of marketing/PPC, etc.

At $5/mo each, you’ll need 10,000 customers to cover a moderate business expense structure in the USA (a handful of employees, health insurance, marketing… all the usual stuff). With a $5 monthly average, you’re almost certainly selling something relatively optional to your customers, so you’ll probably have high churn (this has been echoed by several people who tweeted back to us since we posted this blog post). And the costs to get 10,000 customers will be pretty high. Word of mouth and freemium only go so far. I know some ideas catch fire and go viral, and there are some famous people & companies who are gods of viral/low-cost/free customer acquisition, but that’s the exception, not the rule. Most businesses require investment of time & money to reach customers… at least basic stuff like Google AdWords. Getting to 10,000 paying customers is not easy for most businesses - it will take time & money.

Better Business with Fewer Customers

Now, consider the same story if your average customer pays you $100/mo. Instead of needing 10,000 customers, you only need 500 customers.

It’s much easier to find & communicate with 500 customers, because those 500 are probably much more targeted. Are they in a certain profession? Or maybe they own a specific type of business or asset? You can find them much more easily. And you can listen to them and focus on their needs.

And guess what? Your business with 500 customers will be quieter and calmer, and probably have a lower expense structure. Fewer customers to support, same revenue, and probably better paid employees & owners.

Financing Your Business

Now, I know there are many nuances to this whole discussion. Maybe you want to build Dropbox or Amazon or whatever. Line up some patient capital.

Most people can’t or won’t take that path. Most businesses get off the ground with capital or cash flow provided by the founders and/or friends & family.

For that majority, the advice from those 300 conversations is: offer a product or service worth enough to build a good business with little outside cash. Offer something worth at least $20/mo and preferably more.

(Note that it’s unreasonable to assume you can start a business and get it profitable with no capital or cash flow from somewhere. You will need cash or a day job or something/someone to pay the bills while you get going. But you don’t need a formal angel investor or a venture capitalist to get started. Most people start businesses with money from themselves and friends & family. You might later take money from someone more formal to grow the business - that’s exactly what we did when Chargify took angel investment from Mark Cuban two years after we started.)

As you build up your business, your experience, and hopefully some personal assets, then you can go after larger markets that may take longer to turn a profit. Along the way, you’ll build experience and reputation that will help if you later decide to take outside capital.

Summary

Don’t sell something for $5/mo unless you can lose money for a long time in the hopes of dominating a large market.

Do sell something for $20 or $50 or $200/mo that can actually provide a decent living for the people working in the business. If you take money later to grow it, great! A growing business that’s profitable is better in so many ways.

If my last 300 conversations are any guide, you will be happier!

Pricing Flexibility

We occasionally speak with people who have a recurring billing business in which every customer pays a different price.

I don’t know about you, but after being part of 8 businesses, the idea of infinitely variable pricing scares me - it just seems like it will create complexity.

Standardization feels much cleaner and more manageable.

I ask them:

a) Do you literally mean that every customer will pay a truly random price?

OR

b) Do you mean that every customer will pay a price that’s chosen from a list of, say, 20 discount levels off the regular price?

Most people say “b”.

Or they say that “b” would actually work - they had just never thought of it that way.

Sales Team Needs Flexibility

They have a sales team that needs some flexibility.

If you have a set of standard prices, and you just need to discount the price to close a sale, then coupons are perfect.

Define 10 or 20 coupons that yield different discounts, say from 5% to 25%, and give those to your salespeople.

Chances are, most of your customers will fit into one of the discount brackets.

And if your salesperson really needs to offer something truly custom, then create a coupon just for that customer.

What about Classes of Customers?

Same thing.

Make a coupon for non-profits, another for churches, another for schools, etc., and apply the appropriate coupon after they sign up.

If you really want to keep things tight, get their tax ID and store it in the Notes section of their Chargify subscription, and then apply the coupon.

40% of Chargify Merchants use Coupons

When I joined Chargify a few years ago, we had no support for coupons.

Now we offer coupons in many shapes and sizes:

• Apply at signup only, or for ‘x’ uses, or forever.
• Give a discount that’s a fixed amount ($10) or a percentage (10%).
• And more on the way!

For literally a year or two, I only thought of coupons as something you give to your customers to redeem when they sign up, or maybe to apply after they signed up.

But in the last year, we started hearing about this need for what seemed like infinite pricing flexibility. But the need is almost never really infinite, so coupons fit perfectly.

The Catch

This all relies on the idea that your products & services have an MSRP - a standard price that you can publish and discount, as needed.

In all the sales calls we do, I think I’ve only heard of one or two merchants where their business couldn’t use MSRPs. I could see that in businesses where the product or service is not standardized itself… maybe each deliverable is custom.

The vast majority of businesses & organizations that use Chargify have standardized offerings, so they can have standardized prices, and we’re back to coupons being the key to their sales teams having enough flexibility.

Have fun with coupons! They may just be the thing you’re looking for.

We just added more support for European merchants!

We’ve supported several great payment gateways the UK and Denmark for the past 2-3 years, but we’ve heard consistent complaints from Europeans that we need to add more gateways.

Especially in the big countries, there seem to be national favorites. We still have a list to work on, but Wirecard has been requested over and over.

Wirecard is based in Germany but has grown a lot since we first heard of them in 2010. They appear to work with merchants in every EU country, and they allow charging in every EU currency plus a few non-EU currencies.

They also offer payment gateway + card processing / merchant account functions all in one package.

We’re excited to get this done because it will make Chargify easier to use for EU merchants, especially those in Germany (where we have received the most requests) and also in other EU countries where Wirecard offers service.

Wirecard Countries (where the merchant can be located):
Andorra, Austria, Belgium, Bulgaria, Channel Islands, Croatia, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hungary, Iceland, Israel (Visa only), Ireland, Isle of Man, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, Vatican City

Wirecard Currencies:
USD, EUR, GBP, DKK, NOK, SEK, AUD, CAD, CHF, HKD, JPY, SGD, ZAR
PLN and CZK can be settled if (and only if) merchant is based in those respective countries (Poland & Czech Republic)

Customer Peace of Mind

Many of you have told us that your customers would like reminders on the Chargify signup pages about security and trustworthiness.

More specifically, that the transaction is secure/encrypted, and that they can trust you and the company you rely on (Chargify).

New Badges for Chargify-Hosted Signup Pages

You have two new options to help with this: 1) a badge about SSL/encryption, and 2) a badge about Chargify.

Hosted Page Settings for New Badges:

At Chargify we rely heavily on automated testing to ensure that we always maintain a working app. With so many customers and a heavily utilized API, it’s critical that we maintain complete backwards compatibility and ensure we don’t impact existing customer operations. That’s why our test suite consists of thousands of tests for gateway interactions, workflows, and response formats. Unfortunately, it also made for painfully slow development. By integrating Solano Labs’ TDDium, we were able to reduce our complete test suite run from 2.5 hours to 20 minutes. This incredible improvement helped to promote a radical change in our testing attitudes while keeping our deployment cycle as fast and agile as possible.

What we were doing before Solano Labs’ Tddium

Our previous, homegrown Continuous Integration environment relied on single server to do each build. Unfortunately, because of the intense load from our test suite, we had numerous limitations. We could only run a single build at a time, we often couldn’t see results until it was complete, and debugging test failures was a major pain (that involved sshing into the server to try and extract environment-specific issues). Worst of all, waiting for several hours between builds meant we weren’t able to get quick feedback about broken tests and prevented us from truly making good use of our tests during development. These factors meant we not only spent a lot of time ‘fixing’ the build, but that we often skipped steps or didn’t test properly because of time constraints. Thanks to TDDium, that process has been greatly streamlined so that we can perform TDD the way it was meant to be. 

Faster Testing with Solano Labs

Of course, with a codebase as big as ours, switching to TDDium was not instantaneous. We found a lot of areas in our tests that had to be improved or refactored. Some of these changes were do with to the different runtime environments, but most had to do with brittle tests that did not respond well to the randomized distributed testing model. Many of our tests were order dependent or conflicted with other tests and couldn’t be reliably run in parallel. However, TDDium did a great job of giving us the tools needed to re-create and fix these issues. There’s extensive logging available and even an option to pinpoint the exact tests and ordering used in particular run. In the cases where we needed help, the support from Solano Labs was top-notch. They worked side-by-side with us on issues where we needed assistance and saved us even more time. All this helped us to decouple our tests and prepare them for highly-distributed execution. The process was definitely worth it: we wound up with much more robust test suite that runs in a fraction of the time! 

Having a test suite that runs quickly means we can get much faster feedback about changes that we make.  Instead of waiting until the next day to see if a simple change ‘breaks the build’, we can instead update, test, package, and deploy at a much more rapid pace.  Reducing the turnaround time on getting code to production is truly a lynchpin in any agile operation!

Easy database support!

Surprisingly, one of the easiest integration points with TDDium is the database support. The connections are mostly automatic and it’s easy to specify multiple databases in specific versions. Our tests rely on Redis, Mongo, & MySQL, and all worked basically out of the box! External service integration (like Campfire & Github) has also helped to make our lives easier and improve our team’s workflow.

Help with Rails upgrades

Finally, we’re especially thankful to have set up TDDium before we started on our major upgrade from Rails 2.3 to 3.2. It was a huge undertaking and the ever-watchful eye of our tests is a big reason for our success. Constantly running builds and getting rapid feedback about major architectural changes allowed us keep making progress while not affecting our day-to-day development. TDDium gracefully handled the constantly changing configuration of our app with aplumb!

Ultimately, TDDium has given us a wonderful collaborative environment for running our tests AND provided an order of magnitude improvement in build time to keep our development team happily coding away. Thanks!

by Drew Blas, Software Engineer, Chargify.com

Can Chargify Do It?... Yes!

In sales calls, we occasionally get asked how (or even if) the caller can run a business on Chargify that’s uses “100% metered billing” or “100% usage-based billing” or “variable price billing”. Sometimes they describe their business as, “I charge my customers a different amount every time.”

What they usually mean is a business like Amazon Web Services… you only pay for what you use. No other fees, period. You get billed once a month, but only for what you used, which might be zero, or 78 cents, or 210 dollars.

They don’t think of it as a recurring revenue business, because the amount is not the same for every billing cycle.

But it is. And it’s easy with Chargify.

Once I explain it, I can sense their eyes opening wider and a smile coming to their face. I really love discussing business models and pricing models and helping a developer or business owner or product manager discover how they can set up the model they want.

How It’s Done

This business is a recurring revenue business, but the amount charged is completely variable, starting with zero as a possible amount.

Chargify makes this pretty simple:

1. Set up a product that recurs every month, or every week, or every 3 days, etc. Whatever time cycle makes sense in your market. And set the product price to $0.

2. Set up a Metered Component to capture the unit cost of whatever you’re selling. For instance, if you’re selling CPU hours, then create a metered component called “CPU Hours” and define a price list for it. Make as many components as you need!

3. Subscribe your customer to the product.

4. Tell our system when your customer uses CPU hours. You can do that manually or via API calls. You can do it each time an hour is consumed, or you can wait and just tell us daily or whatever.

5. Chargify will generate a bill each month/week/day/whatever. Your customer will be billed for exactly the hours they used. If they used none, they will be billed $0. And if you don’t want them to receive statements/receipts for $0, you can tell our system not to send them if the amount due is $0.

6. Let the money roll in!

What if You Can’t Trust Your Customers to Pay a Large Balance?

Some markets require that you bill customers more often. We’ve seen this a fair number of times.

“My customers will get real estate sales leads that are worth $50 each. What if they take 4 a week but I don’t bill them for a month? I could be out $800 and the leads can’t be resold.”

There’s an easy answer… Tighten the billing cycle.

We have merchants that bill their customers every day.
Or every 3 days.
Or every week.

You can set up a billing cycle that’s defined as ‘x’ days or ‘x’ months. That allows almost anything you can think of.

So with those real estate leads, set the cycle to 3 days or 5 days. That way, you can never lose much money.

And remember, if the customer took no leads, then the bill will be $0, and if you have Chargify set to supress $0 totals, then your customer won’t even know that a bill was ever generated and they won’t be bothered by receiving a $0 statement or receipt.

Hungry for More?

Our Components allow a lot of interesting billing scenarios for metered units and user-license billing. Think of text messages and software licenses. There are many more.

And you can set up intricate pricing of those units: things like volume discounts and tiered pricing. The first 100 units might be $50 each, but the next 100 units might be $40 each.

If this whets your appetite for interesting billing scenarios and interesting business ideas, learn more about Chargify Components.

Pricing Flexibility

We occasionally speak with people who have a recurring billing business in which every customer pays a different price.

I don’t know about you, but after being part of 8 businesses, the idea of infinitely variable pricing scares me - it just seems like it will create complexity.

Standardization feels much cleaner and more manageable.

I ask them:

a) Do you literally mean that every customer will pay a truly random price?

OR

b) Do you mean that every customer will pay a price that’s chosen from a list of, say, 20 discount levels off the regular price?

Most people say “b”.

Or they say that “b” would actually work - they had just never thought of it that way.

Sales Team Needs Flexibility

They have a sales team that needs some flexibility.

If you have a set of standard prices, and you just need to discount the price to close a sale, then coupons are perfect.

Define 10 or 20 coupons that yield different discounts, say from 5% to 25%, and give those to your salespeople.

Chances are, most of your customers will fit into one of the discount brackets.

And if your salesperson really needs to offer something truly custom, then create a coupon just for that customer.

What about Classes of Customers?

Same thing.

Make a coupon for non-profits, another for churches, another for schools, etc., and apply the appropriate coupon after they sign up.

If you really want to keep things tight, get their tax ID and store it in the Notes section of their Chargify subscription, and then apply the coupon.

40% of Chargify Merchants use Coupons

When I joined Chargify a few years ago, we had no support for coupons.

Now we offer coupons in many shapes and sizes:

• Apply at signup only, or for ‘x’ uses, or forever.
• Give a discount that’s a fixed amount ($10) or a percentage (10%).
• And more on the way!

For literally a year or two, I only thought of coupons as something you give to your customers to redeem when they sign up, or maybe to apply after they signed up.

But in the last year, we started hearing about this need for what seemed like infinite pricing flexibility. But the need is almost never really infinite, so coupons fit perfectly.

The Catch

This all relies on the idea that your products & services have an MSRP - a standard price that you can publish and discount, as needed.

In all the sales calls we do, I think I’ve only heard of one or two merchants where their business couldn’t use MSRPs. I could see that in businesses where the product or service is not standardized itself… maybe each deliverable is custom.

The vast majority of businesses & organizations that use Chargify have standardized offerings, so they can have standardized prices, and we’re back to coupons being the key to their sales teams having enough flexibility.

Have fun with coupons! They may just be the thing you’re looking for.

We just added more support for European merchants!

We’ve supported several great payment gateways the UK and Denmark for the past 2-3 years, but we’ve heard consistent complaints from Europeans that we need to add more gateways.

Especially in the big countries, there seem to be national favorites. We still have a list to work on, but Wirecard has been requested over and over.

Wirecard is based in Germany but has grown a lot since we first heard of them in 2010. They appear to work with merchants in every EU country, and they allow charging in every EU currency plus a few non-EU currencies.

They also offer payment gateway + card processing / merchant account functions all in one package.

We’re excited to get this done because it will make Chargify easier to use for EU merchants, especially those in Germany (where we have received the most requests) and also in other EU countries where Wirecard offers service.

Wirecard Countries (where the merchant can be located):
Andorra, Austria, Belgium, Bulgaria, Channel Islands, Croatia, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hungary, Iceland, Israel (Visa only), Ireland, Isle of Man, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, Vatican City

Wirecard Currencies:
USD, EUR, GBP, DKK, NOK, SEK, AUD, CAD, CHF, HKD, JPY, SGD, ZAR
PLN and CZK can be settled if (and only if) merchant is based in those respective countries (Poland & Czech Republic)

This is a bit off-topic for the Chargify blog. We usually write about things that help you run your recurring revenue business!

But many of our readers are entrepreneurs and small business owners, and after a recent post, some said, “Hey, along with stories about features and strictly business topics, we’d like stories about running a business with friends, raising capital from family, etc.”

Business with Friends

When you think about it, the interaction of business and friends is very important, especially for people in small businesses.

Many people start businesses with friends, or they hire friends.

Losing close, long-term friends is bad, because you don’t have many of them in life. I’m talking about people you have as friends for 15 or 20 years, people with whom you spend formative years and/or build great things.

I’ve partnered with and hired friends for 25 years, with outcomes from great to terrible.

I’m going to focus here on a 10-year story with many good things but a terrible outcome in terms of friendship.

Lost Friend #1 (“LF#1”)

LF#1 and I met near the end of high school. I can’t remember exactly when. We were hard-core nerds in the 1980s, before it was mainstream. We were building circuits and writing assembly language in junior high and high school. The love of electronics and code led to friendship.

Starting the Business

We started a company about a year out of high school, when we were 19. I had a day job earning $7/hr. It was 1987.

Our first product was a 1MB memory card for the Apple IIgs. I reverse-engineered Apple’s card, which was $399, and had a wire-wrapped prototype that worked! We figured we could sell the same thing for $199, produced right here in Sacramento.

We were roommates to keep things cheap, plus we were always working together, so might as well share a place. My only “extra” was a used motorcycle I bought from another long-term friend, Tom.

We raised $20K from friends & family so we could pay for circuit boards and magazine ads and trade shows. My friend and I each owned 40% of the company. Our extended families owned the remaining 20%. We made sure our respective families each owned 50%. Years later, we let that balance slip.

Finding our Niche

It took us several years to find what today is called product/market fit. We “pivoted” a few times. (It’s funny now, because there were no such terms back then… we were simply “surviving” and “having fun” back then.)

We started with the Apple memory card but memory chips prices skyrocketed and then Apple started giving away their card. Whoops! We ended up making development tools for hardware/software engineers: things like EPROM emulators, in-circuit (processor) emulators, assemblers, etc., for 8-bit microcontrollers. Our most successful product a few years later was a tiny single-board computer that did truly amazing things for just $39. (The company remains today and has made other cool products.)

Along the way, other things fell into place: we found the right magazines to advertise in, that reached the right customers, at a high enough price to run a company. Distributors came calling, pushing us to learn how distributors work.

We built the company from apartment, to apartment + storage room down the street, to small office down the street, to larger office down the street, etc. We hired people who were friends or who became friends.

The business was fun and frustrating in those early few years (ie, trying to sell memory cards). I remember my dad telling me on every visit, that I should really consider going to college and becoming a professional. From his perspective, I was 18, 19, 20, 21, maybe 22, and treading water. I believed we’d make it, but he was just concerned like any parent.

Early Growth

Once we found a market we liked and that liked us, our business grew.

I reduced my “day job” hours to nights & weekends so I could work more on the business.

At one point, my mom gave me $25K that she couldn’t really afford to give, so I kept $6K and gave back $19K. The $6K gave me $500/mo x 12 months of “runway” so I could quit my day job entirely. (btw, I knew I’d need to help support my mom by my late 20s, so using $6K to focus on the business was basically an investment in her future.)

I’m leaving out tons of details over several years, but let’s just say that LF#1 and I were best friends all along the way.

Stable Growth Years

When I was 24, I rode my motorcycle around the USA for 3 weeks. I had been working full-time for our company for a year or two, we had a fantastic little team of 5-6 employees, and while I was on the ride, our first full-page, full-color ad came out in Circuit Cellar magazine.

I checked in with the office every few days, and the news was good: the ad was generating calls and sales. We had introduced the first affordable, complete set of dev tools for Microchip “PIC” microcontrollers. I think we had credit card processing by then (which was *actually* hard to get back then, requiring assets and banking relationships).

American Dream

We grew our company to something like 15 people. We moved to a nice suburb where we got “AAA” office space with trees and open space (and it was cheap because there was a recession). We both bought (well, mortgaged) modest 3-bedroom new homes nearby. Pretty much American Dream stuff, right?

Over the course of our 20s, we built this thing that gave us a decent life. In our early 20s, we struggled but then eventually paid ourselves something like $2K/mo. By our late 20s, I think it was up to $7K/mo. We were on par with educated professionals, and we loved what we were doing.

Drifting Apart

But once we reached 27 or 28, LF#1 and I were drifting apart. We had our own houses and personal lives, but more importantly, some of our views on how to run the business and just how to look at life had changed.

You drift apart in small increments that accumulate, and at some point, you find that you and your friend are noticeably distant.

I remember LF#1 and me having a chat somewhere near Lake Tahoe at that time. We wondered if it was time to split. We could see that we were no longer the same friends, but it wasn’t yet all that bad.

Lesson #1

Opportunity may be disguised as something negative.
And it may not match your timing.

If there was going to be a nice outcome to this story, the Lake Tahoe chat was the right time. It didn’t have to be right then, but sometime after that, say within 6 months.

Lesson #2

Know you can win a fight before it starts.

My friend’s family owned 53% of the stock by this time, so any real fight was not going to end with me running the company. It might get dragged out, but 53 is greater than 47. At best, there would be a big fight and I’d get something decent if I played my cards right.

(I know that people like Carl Icahn wield a lot of power with 9% of Dell, but I’m not Carl Icahn and I didn’t even know his name back then.)

I did nothing. Complacency + ego + uncertainty about any other path + not having enough money & confidence to make an unknown future seem more acceptable.

Had I known and heeded this lesson, knowing that my family only had 47%, I would have at least consulted a mentor or a lawyer to discuss future options and outcomes. That might have led me to realize that now was the best time to pursue a different future, probably on good terms personally and financially.

Lesson #3

Save money.

The business had great cash flow but thin profits.

Personally, we got paid a decent salary by our late 20s, but we didn’t save any real money. I didn’t think I could last very long without my paycheck.

Having money saved would have reduced that fear and allowed me to make better decisions.

Lesson #4

You have opportunities.

You probably just can’t see them, especially if you’re been living and working in the ‘burbs and focused on your business for 8 years.

Guess what year it was? It was 1995 or 1996. The Web was just starting. The Yahoo founders were on the cover of Fortune or Forbes as the representatives of this hot new industry.

I was pretty hard-wired to work for myself, especially after spending most of my 20s doing so. I didn’t think I could work well for others, and I didn’t think employers would want me. I was a programmer and a marketer and a sales guy and a many other things, but not an expert in any area.

The terrible shame is that I didn’t even take a week to drive to SF and knock on doors.

Continuing the story…

Alright, so we had our chat by the lake and nothing changed. Another year or two passed.

We continued to grow more distant. We went to work, occasionally disagreed over this or that, sometimes openly. A couple of LF#1’s extended family members worked there or came to work there.

I remember a couple of events that really strained our friendship:

• Some people we knew/liked/trusted helped another company develop a direct competitor to one of our core products. LF#1 made most of our products at this point, and he was personally hurt, offended, and angry. I was, too, but in a much less emotional way - trying to be the voice of calm & reason. No matter who was “right”, we were different on this, and that really stressed our friendship.

• Somewhere in there, my friend wanted to try being CEO. I had been CEO and he had been VP & CTO for all of those years. It’s hard to remember now, but I handed the title of CEO to him. That’s about all I remember. I’m sure there was a board meeting to make it official. But the 53% wanted me out, or at least marginalized and on the path to being out.

As you can see, our friendship was unraveling and it was intertwined with the business. It was going downhill faster now.

From Vegas to Jobless

Somewhere about when I was 28 or 29, I went to CES in Las Vegas, came back, and found out I no longer had a job. The board had met or at least the major shareholders had spoken (I was on the board, but oh, well).

My cell phone and credit cards were cut off. I was no longer welcome at the office and the locks had been changed. They hired an armed guard in case I went ballistic. (We all own guns.)

That hurt, because we had known each other for 13 years or something. I save spiders!

Anyway, we lawyered up. Me first, since I was the guy on the outside. The time for a friendly outcome had passed.

Over a period of several months, they made me an offer that was “okay” but not “good”.

But I’ll give them this: keeping in mind that our business back then didn’t actually make much money after paying everyone, any purchase of my equity was going to require a loan somewhere, probably with personal guarantees.

Lesson #5

Make money in your business.

If we had run the business better for all those years, I bet there would have been less stress all around. And maybe, just maybe, that would have led to a better offer for my equity and less stress on them to come up with the money.

Lesson #6

Extend / take a “good” offer.

This one is tricky, because everyone is playing poker, maybe through lawyers.

They were saying $x was the most they could offer. My lawyer was saying my equity was worth at least 2x or 3x, and that it was their problem how to come up with it if they wanted me out.

Somewhere in all of this, I did get a sweeter offer. It was for the same cash PLUS a product and cash flow that was declining. I didn’t want it for the same reasons that no one wanted it - it was slowly dying and not sexy. But it was still a better offer. Cash + cash flow.

I also VERY MUCH wanted to keep a little bit of equity. It was emotionally important to me.

If we could have worked out a “good” offer that included some non-voting equity, I was ready to sign, and to do so happily. To this day, I don’t understand why they couldn’t meet me on that one.

Lesson #7

If you hire a good lawyer, follow his or her advice.

This was happening during the holidays in 1996 or 1997. My lawyer took off for two weeks. He told me not to sign any offers.

I remember getting a fax from the board/owners that said, basically, accept this offer soon or we’ll dissolve the company and start over with the IP somewhere else. I didn’t want to see that, and my dad (who was now involved) was getting nervous about a messy fight, equity destroyed, etc.

So I signed the offer. Exactly what my lawyer said not to do.

When my lawyer got back, he was flabbergasted. He said, “Oh my god! You should have gotten 2x or 3x, and by the way, if they did dissolve the company, we’d sue for 40% of the assets and other damages!”

Besides, he was convinced that calmer minds would prevail and they wouldn’t actually destroy the company, but it was too late.

Lesson #8

Sometimes emotion is best.

When I got that fax that said take it or else, I thought about writing “jump in a lake” on it and faxing it back as quickly as possible. That would have been very satisfying!

But I wanted to be reasonable and civilized. I wanted to confer with others.

My close friend, Tim, wanted me to fax “jump in a lake” instantly.

He was a close friend and had witnessed the years of growing the company, but Tim’s thinking wasn’t clouded by details and fears. He just saw the top-level stuff, and ironically, he and my lawyer agreed 100%.

Today, with more time under my belt, I’ve seen that sometimes it’s best to throw out civility and just act on emotion. I have seen situations where the emotional, raw response gets a better outcome and generates respect.

Lesson #9

In a fight over a prize, be willing to lose the prize.
(Or, put another way, be okay if the prize gets broken & redistributed).

My desire to keep the prize intact yielded big negotiating leverage for them.

They were already using the scorched earth strategy, right? So, you might ask, what would be gained by both sides using that? Wouldn’t that just result in a ruined company?

Maybe.

But remember, it was an unlikely outcome, and EVEN IF THEY DID, assets would be redistributed. It would be very disruptive but life goes on.

Lesson #10

Negotiate from a position of relative strength.

That’s obvious, right? But I didn’t do some things that should have been obvious.

If you find yourself in such a situation, step away for 2-4 weeks and think about what you can do to put yourself in a better position.

Your opponent wants you constrained in terms of time, money, and options, so you need to reduce or eliminate your weaknesses (and, if possible, their strengths).

Sometimes the best position is to not care.

I should have taken off to explore new opportunities, and just left my lawyer as the only contact. That would have said, “I’m caring less by the day” + “My bulldog is in charge”.

There are times when I think it’s better not to let the lawyers run the show, as they tend to complicate and escalate things. But in a fight where the other side has dug in and where emotional attachments may put you at a disadvantage, I can see just leaving your lawyer in charge.

Summary

As you can imagine, our friendship was utter toast after those few months.

Where it may have been salvagable a year earlier, this was a fire that utterly destroyed our friendship. There were very bad feelings, lawyers, threats, etc.

It’s been 16 years since.

It’s weird to think that only 2-3 years before the end, we considered ourselves best friends. Someone asked about our friendship and how we ran the company, and we both said that we couldn’t imagine it any other way.

Unfortunately, sometimes things take a bad turn.

To keep the friendship and get a good deal, since I was the one with the minority stake, I needed to happily walk away at that early time when we spoke at Lake Tahoe.

Doing that would have required me to see leaving at that time as a golden opportunity, one in which I could have created a better outcome.

Doing that would have required me to not be afraid of my lack of college education nor lack of specialized skills. Having more money saved would have helped.

Of course, I would have had to swallow my pride and my belief that “this is as much mine as yours”. Although that was in fact true, the respective family ownership structure made the reality more complex.

Lessons for the Future

I learned many lessons in that 10-year span, and some of my other friends learned those lessons by watching.

I also learned some “wrong lessons”. I resisted involving other owners in my next business, and then that bit me later.

When my friend Tom and I founded Engine Yard nine years later, we did a better job and we planned for various outcomes.

I have another good story (a shorter one) about friendship destroyed in business, but that’ll have to wait.

Chargify is happy to introduce a new set of API endpoints called “Metafields” and “Metadata”. These endpoints allow you to store additional data with subscriptions and customers. For now the feature that is being described is an API-only endpoint but we do plan to extend them into our Admin UI and Hosted pages in the months to come. That being said, let’s dive into what metafields / metadata are and what they aren’t. An analogy that might help better understand how they work is this: metafields and metadata, combined, act as a key/value pair to represent your additional data. (Metafields being the key and metadata being their values.)

Let’s talk about what they are and their intention first. A metafield is scoped to a site (so you will have to define the wanted keys per site) and they belong to customers or subscriptions. Notice that I am referencing customer and subscription in their plural form here - this is very important. Let’s discover what that means by the use of an example.

Say you want to keep track of the shirt size for a monthly subscription - previously you would have had to keep all of this data in your system and then you would have to join Chargify subscription IDs to IDs in your system - what a mess. What you can do now is the following:

POST https://fancy-tees.chargify.com/subscriptions/metafields

{
 "metafields": { "name": "Shirt Size" }
}

This will create a metafield “Shirt Size” for subscriptions for the site “fancy-tees”. If you have a large amount of fields that you would wish to define you can do it in batch as well!

POST https://fancy-tees.chargify.com/subscriptions/metafields

{
 "metafields": [
     { "name": "Shirt Size" },
     { "name": "Shirt Color" }
   ]
}

This will define “Shirt Size” and “Shirt Color” for the site “fancy-tees”

You may be asking yourself, “Well, that’s great, but what can I do with it?” - well, that is where metadata comes in. Say you have a subscription with ID 42 and you would like to store the shirt size and shirt color for that subscription. This is how you would do that:

POST https://fancy-tees.chargify.com/subscriptions/42/metadata

{
 "metadata":[
     {
       "name": "Shirt Color",
       "value": "Chargify Green"
     },
     {
       "name": "Shirt Size",
       "value": "Large"
     }
  ]
}

Now for subscription 42 you can fetch the same data with the API call:

GET https://fancy-tees.chargify.com/subscriptions/42/metadata

Another thing to note: If a metadata item named “A special field” doesn’t exist and you go to create a metadata item with that name for a subscription - it will create the metafield for you. This is out of convenience to allow mass imports of data. Please be aware that if you misspell a key name it will create it. Luckily, you can rename and delete fields and data easily!

This all being said, I urge you to read the documentation (http://docs.chargify.com/api-metafields and http://docs.chargify.com/api-metadata)

Now I would like to take a moment and talk about what metafields and metadata are not. Our plan is to keep the interface for metafields and metadata simple and fast. To do that we have designed these endpoints to be searched by “name” and not by “value”. It is your job to fetch this data and filter it to your heart’s content. We do not intend to create a metafield/metadata query syntax - as cool as that would be, it doesn’t really fit with what we are trying to achieve with this feature. If you need to do complex queries or create general purpose datasets, we urge you to store additional data in a database of your own and optimize your queries there. Another thing to note is that there are limits: each resource may have up to 200 metafield names, and each metadata value may contain up to 2kB. Please keep that in mind when using these endpoints.

To summarize, metafields and metadata are not intended to be a general-purpose datastore; instead they are a way to keep important additional data close to subscription and customer records. We hope you enjoy this additional set of endpoints - we are very excited about it! As we roll out the additional features revolving around metadata and metafields, we will be sure to let you know.

Hope you enjoy!

We love building tools that simplify subscription business management, freeing our merchants to focus on what makes their businesses unique and amazing.  Many of you are doing just that - building awesome services and tools desired and relied upon by an impressive number of subscribers.  So far in August alone, our merchants have added over 68,000 new live subscriptions and billed over $8.2 Million USD.  That’s awesome!

Not surprisingly, our most-requested feature is something described simply as a “Portal”: a place where your subscribers can manage their Chargify-powered subscriptions without you having to write even 1 line of code or sign up for any new services.

Today, we’re making that vision a reality with the launch of the Billing Portal at BillingPortal.com.

What is the Billing Portal?

Billing Portal is a tool that makes it easy for your customers to directly manage their subscriptions.  Once you enable Billing Portal for a customer, they will instantly be able to perform a variety of subscription management duties:

View subscription details

Whether a customer has one or many subscriptions with you, we provide the at-a-glance info they need. This view includes next billing date, trial status, current credit card on file, billing address, shipping address, and more.

Change plans (Upgrade/Downgrade)

Customers can easily preview their upgrade and downgrade options, then finalize the change with one more click.

Add or update their credit card on file

Cancel accounts

As much as it hurts to see customers leave, its important to make it an easy and painless process once it is inevitable.  We’ve got your back there.

View Statements and Invoices

We’ve redesigned statements and they are beautiful and easy-to-follow in the Portal!  In addition, your subscribers can easily download PDFs of their statements and invoices.

Enabling Portal

The Billing Portal can be turned on under the Settings tab of Chargify.  You can choose whether you want new customers to be automatically invited (via email), or whether you’d like to manually invite your subscribers.  There are some customization options you’ll want to consider, such as the ability to upload a logo that displays to your subscribers in the Portal.

You can manage your invited subscribers from the “Billing Portal” sub-tab of the Subscriptions tab.  From here, you can send and revoke invitations.  You can even bulk-invite subscribers when you are ready to make Portal available for all.

Authentication

A guiding principle for our design of Billing Portal authentication is that your subscribers shouldn’t have to create (or remember!) yet another password.  If your service is password-protected, we recognize that having a separate password for just the “billing part” might cause confusion.

So, we’ve taken a different approach - there are no passwords.  Access is controlled via short-lived links (URLs) sent to your subscribers via email.  As long as they have quick access to their email accounts (and who doesn’t, these days?) they’ll be able to quickly access and log in to Portal.  Once logged in, we try to make it easy for them to remain authenticated in a seamless way.  If you enable statements-via-email in Chargify (which is an existing feature many of you use), those statements will now include a “management link” that will quickly whisk the subscriber away to the Billing Portal, where they can dig into the details or make changes.  As long as we “know” this subscriber and the device they are using, clicking the management link will appear like a seamless transition.  If they are new or don’t have a session on their current device, they’ll be able to easily request a login link to be sent to their email, which works a lot like the well-known “forgotten password” flow.

Available Today for All Merchants

We’re making Billing Portal available to all of our merchants on all of our plans.  In the future, we may offer advanced features of Portal, including white-labeling options, to our higher plans.

Billing Portal is brand new, and we’re excited for you to try it.  As always, we’ll continue to iterate on it.  We’d love your feedback during this process.

One interesting insight into the technical side of Billing Portal is that, other than a few configuration bits on the Chargify side, Portal has no special access, privilege, or magic.  It consumes our (upcoming) API Version 2 and uses Chargify Direct for all forms that handle sensitive cardholder data.  In the coming weeks, we’ll be fully documenting this new API so you can make use of its efficiency and new features.

This new feature lives at a different domain (billingportal.com), which gives us a lot of flexibility for how it’s used going forward.  Still, it is a Chargify feature though-and-through.  We hope you like it.

Disclaimer: the use of Mark Wahlberg’s name and image is not meant to imply endorsement.  You should still go watch some of his movies or listen to some of his music.

UPDATE on Aug 30, 2013: New Features
Due to merchant requests in the past few days, we have added 4 new options for your Billing Portal functionality.
You can now allow/disallow your customers doing these things:
* Change Plan
* Cancel Plan
* Update Card
* Update User Profile

ORIGINAL POST on Aug 27, 2013:

We love building tools that simplify subscription business management, freeing our merchants to focus on what makes their businesses unique and amazing.  Many of you are doing just that - building awesome services and tools desired and relied upon by an impressive number of subscribers.  So far in August alone, our merchants have added over 68,000 new live subscriptions and billed over $8.2 Million USD.  That’s awesome!

Not surprisingly, our most-requested feature is something described simply as a “Portal”: a place where your subscribers can manage their Chargify-powered subscriptions without you having to write even 1 line of code or sign up for any new services.

Today, we’re making that vision a reality with the launch of the Billing Portal at BillingPortal.com.

What is the Billing Portal?

Billing Portal is a tool that makes it easy for your customers to directly manage their subscriptions.  Once you enable Billing Portal for a customer, they will instantly be able to perform a variety of subscription management duties:

View subscription details

Whether a customer has one or many subscriptions with you, we provide the at-a-glance info they need. This view includes next billing date, trial status, current credit card on file, billing address, shipping address, and more.

Change plans (Upgrade/Downgrade)

Customers can easily preview their upgrade and downgrade options, then finalize the change with one more click.

Add or update their credit card on file

Cancel accounts

As much as it hurts to see customers leave, its important to make it an easy and painless process once it is inevitable.  We’ve got your back there.

View Statements and Invoices

We’ve redesigned statements and they are beautiful and easy-to-follow in the Portal!  In addition, your subscribers can easily download PDFs of their statements and invoices.

Enabling Portal

The Billing Portal can be turned on under the Settings tab of Chargify.  You can choose whether you want new customers to be automatically invited (via email), or whether you’d like to manually invite your subscribers.  There are some customization options you’ll want to consider, such as the ability to upload a logo that displays to your subscribers in the Portal.

You can manage your invited subscribers from the “Billing Portal” sub-tab of the Subscriptions tab.  From here, you can send and revoke invitations.  You can even bulk-invite subscribers when you are ready to make Portal available for all.

Authentication

A guiding principle for our design of Billing Portal authentication is that your subscribers shouldn’t have to create (or remember!) yet another password.  If your service is password-protected, we recognize that having a separate password for just the “billing part” might cause confusion.

So, we’ve taken a different approach - there are no passwords.  Access is controlled via short-lived links (URLs) sent to your subscribers via email.  As long as they have quick access to their email accounts (and who doesn’t, these days?) they’ll be able to quickly access and log in to Portal.  Once logged in, we try to make it easy for them to remain authenticated in a seamless way.  If you enable statements-via-email in Chargify (which is an existing feature many of you use), those statements will now include a “management link” that will quickly whisk the subscriber away to the Billing Portal, where they can dig into the details or make changes.  As long as we “know” this subscriber and the device they are using, clicking the management link will appear like a seamless transition.  If they are new or don’t have a session on their current device, they’ll be able to easily request a login link to be sent to their email, which works a lot like the well-known “forgotten password” flow.

Available Today for All Merchants

We’re making Billing Portal available to all of our merchants on all of our plans.  In the future, we may offer advanced features of Portal, including white-labeling options, to our higher plans.

Billing Portal is brand new, and we’re excited for you to try it.  As always, we’ll continue to iterate on it.  We’d love your feedback during this process.

One interesting insight into the technical side of Billing Portal is that, other than a few configuration bits on the Chargify side, Portal has no special access, privilege, or magic.  It consumes our (upcoming) API Version 2 and uses Chargify Direct for all forms that handle sensitive cardholder data.  In the coming weeks, we’ll be fully documenting this new API so you can make use of its efficiency and new features.

This new feature lives at a different domain (billingportal.com), which gives us a lot of flexibility for how it’s used going forward.  Still, it is a Chargify feature though-and-through.  We hope you like it.

Disclaimer: the use of Mark Wahlberg’s name and image is not meant to imply endorsement.  You should still go watch some of his movies or listen to some of his music.

I’ve told this story many times in-person, and the last person said, “You should blog that!”

It’s fascinating how life works sometimes.

This is a short story of how billionaire Mark Cuban invested in Chargify, a small business in 2011 helping many other small businesses manage their recurring revenue customers. I will hazard a guess that none of the parties saw this coming.

Looking for Angel Capital in 2011

The Chargify co-founders put up the capital to start and run Chargify in 2009 and 2010. By early 2011, we thought a bit of extra capital would help. We wanted to keep merchants happier than we could with the cash + revenue we had at that point.

We didn’t need much - not by investment standards. We just needed enough money to hire another software developer or two, to expand infrastructure, etc. $250-500K would give us enough “runway” to make the improvements we wanted until we got profitable.

But getting angel investors to invest was tough.

Over 3 months, I contacted everyone I knew, wrote lots of emails, had phone calls, visited offices in Palo Alto, etc. Investors wanted a billion dollar exit (which I couldn’t demonstrate without a joke in 2011), or they felt our market was going to be dominated by PayPal, or whatever. There are also few formal investors who want to write such a small check. It’s not worth their time if they’re managing a huge fund.

I kept at it, but I seriously wondered if my time was better spent just continuing to answer Chargify sales calls.

Somewhere during these months, I got a tweet from Marshall Haas (@marshal). We had been following each other for a few years, I think because we both love sport bikes and business. One of us must have started following the other after seeing a retweet or something.

Somewhere over the years, Marhsall and I met at SXSW. I can’t remember when it was, but I met Marshall with some friends and Chargify folks at Halcyon in Austin. I think that was earlier.

So I think we knew each other because of Twitter, and then later met once during SXSW in Austin.

This is where life is fascinating, because this very fragile connection is what led to investment for Chargify.

Motorcycle Ride from Dallas to California

Marshall tweeted to me about an upcoming motorcycle ride. He was going to ride from Dallas to various cities in California, and he wanted to know if he could crash on my couch in Sacramento and we could ride around Sactown. I said “sure!”

I continued the investor discussions and visits. They were not fruitful. We were a very small team back then, and time spent with investors was time not spent with customers - either helping existing ones or helping sales leads understand the wonders of Chargify

As summer approached, I remember thinking I should quit the investor hunt and just focus back on customers. I was in that frustrating period of a losing project, where you wonder if you should keep going or just cut your losses.

Marshall Rode into Sacramento

Marshall stayed a day or two and we rode around a bit. We stopped in a Starbucks in my old neighborhood, and we talked about whatever was on our minds.

When I mentioned that we were looking for some angel capital and that my search was winding down without much luck, Marshall asked if I had contacted Mark Cuban. I hadn’t, so he gave me Mark’s email address.

I don’t know how Marshall had Mark’s email address, but I later found out that Mark’s email address, while not posted on his Dallas Maverick’s website, is not a state secret, either. But having it, and the idea of contacting Mark, handed to me by Marshall was very nice.

Composing an Email to Mark Cuban

In my experience at my previous company, Engine Yard, working with busy, very successful people like Peter Fenton at Benchmark Capital, or Michael Dell, I learned that my usual email length was too long. These guys do email on smartphones, and they want summary info most of the time. If they want detail, they’ll ask for it.

One has to assume Mark gets a lot of unsolicited emails, so he was going to glance at my email and either keep reading or hit ‘delete’ pretty quickly.

I composed a 4-line email, with blank lines between each line. It was structured to convey the minimum he’d need to decide if he’s even interested, and to be easy to read on a small device:

1. “I got your email address from Marshall Haas” (I didn’t think they knew each other, but you never know, and it still helps answer “How’d this guy get my email?”).

2. “My co-founders and I founded Grasshopper and Engine Yard, in which Amazon, Benchmark, and NEA invested.” (A little bit of name-dropping, but not just fluff - if he didn’t look up these companies, at least he read that other smart investors invested in a previous company.)

3. Our new company, Chargify, described in 1 or 2 sentences.

4. “We’re looking for angel capital to fill in some gaps. Maybe you’re interested in such investments.”

Does Mark Sleep?

Mark emailed back within an hour, which was surprising because it was 8 or 9pm in California, which meant it was probably later wherever he was located.

We exchanged several emails. Mark was interested!

He asked about valuation, amount needed, and a slide deck. All of that earlier investor work wasn’t a waste after all! My deck was 10 or 12 slides.

We agreed to a valuation exactly in the middle of what he and I wanted, and we agreed to an investment amount.

I contrasted that single-evening negotiation process with the much longer process of getting formal venture capital for Engine Yard. I remember thinking, “Wow, that’s how fast it can be when someone is investing his own money.” The core decisions were made in near-real-time, because there’s no other group Mark has to convince.

Done!

Well, almost.

Completing the Deal

Making the initial deal is just the start. There’s still a process that both parties have to go through, called due diligence. It’s the process of finding out much more depth about each other (mostly the investor finding out what he or she is investing in). And there are usually things that need to be cleaned up regarding corporate structure, ownership of assets, debts, etc.

The deal actually got derailed for several hours on a Saturday about 6 weeks in, but we ironed out a few things and got back on track the same day.

(I’ve learned this lesson a few times: the deal is NOT DONE until papers are signed and the money is in the bank. I’ve witnessed deals collapse at the very, VERY end, which is emotionally taxing on everyone. Thus, try not to count the money until you have it.)

By late summer, we completed Mark’s investment in Chargify.

Summary

I’m sure we would have “made it” without the investment, but we would not be the same company we are today. While we founders have put in most of the capital, Mark’s money was that extra amount that was holding us back from really keeping our merchants happy at a critical time. Things were just too tight until we got a bit more money.

That all happened in 2011. We got Chargify profitable in 2012. And 2013 has been great.

When I look back, it still amazes me that it worked out as it did. Just when I was ready to throw in the towel regarding finding more capital:

1) Marshall rode into town with the suggestion to contact Mark Cuban.

2) Mark was interested.

3) The deal got done.

Be Social, and Be Nice… increase your Chances of Opportunity

Remember the thin thread on which this all depended?... It goes back to Marshall or me following the other on Twitter one day probably back in 2008 or 2009, maybe after a tweet about motorcycles or Engine Yard business or something.

What if we hadn’t tweeted, or what if we just didn’t care enough to follow each other? What if he had ridden during a different time of the year, when the investment topic was not relevant, or what if I had been out of town? What if Mark had already invested in something similar, or just wasn’t interested in the space, or was having a bad day?

That’s the random side of opportunity.

Of course, we do things to make good opportunities more common. We educate ourselves, we learn skills, we seek good places to work, we demonstrate honesty and hard work.

I think it’s wise to also be at least moderately social, and be nice to people along the way. You never know how long and how fragile a thread may be that leads to something very good.

I’m glad this thread held up.

Thanks, Marshall, and thanks, Mark!