This Week in Production Ready - Issue #10

ConvertKit and the Creator Economy, Tiny Products and The Great Migration

Business Spotlight 🔦

Hiten Shah told his friend to shut the company down — it was going nowhere. Two years after starting the product, revenue was at just $1.3k MRR and declining quickly. The founder was losing interest and customers were churning. He had a choice to make — shut it down or double down. He decided to go all in. The rest is history.

Our feature this week is one of the more famous bootstrapped businesses, ConvertKit. Founded by Nathan Barry in 2013, ConvertKit is an email marketing tool built for creators who want to better distribute their content and digital products.

Fast forward to today and the company recently passed the $2m MRR milestone. It's currently on a $25m annual run rate. They have 30k customers who pay an average of $64 per month (with an LTV of $1,250). Some of their celebrity customers include Tim Ferriss, Gretchen Rubin and Tim McGraw.

The genesis for the company came from Nathan's experience building an audience. His first entrepreneurial gig outside of salaried employment was to create and sell digital products online. As Nathan explains in this Indie Hackers interview:

After leaving a job leading the software design team at a startup, I really wanted to earn my living from selling products to my own audience. The only problem was that I didn't have an audience. So as I built iOS apps for myself and clients, I started blogging about it and then decided to write a book called The App Design Handbook. It launched to a small audience of 798 subscribers (hosted on MailChimp), but sold $12,000+ in the first 24 hours

He ended up making about $80k in two months from theses products. But he didn’t have any reliable income so he decided to build a SaaS product. He had no idea at the time so he publicly launched his 'Web App Challenge' with the aim of getting to $5k MRR in 6 months.

While he was still selling his digital products he struggled to get MailChimp to meet his needs. There were other more powerful options such as Infusionsoft but the interface was clunky. So Nathan built ConvertKit with a clear statement of intent:

the power of Infusionsoft, but easier to use than MailChimp

After struggling for the first couple of years, ConvertKit started to take off when Nathan committed properly to direct sales. He had tried content marketing but the efforts never paid off. Out of necessity, Nathan started cold emailing bloggers and setting up Skype demos to onboard them to the product. Revenue grew from $1.3k MRR to $5k MRR and hasn't stopped growing since.

In terms of pricing, they charge based on subscriber count. It's free for up to 1k subs. After that there's two tiers — Creator which starts at $29/month and Creator Pro which starts at $59/month. It doesn't matter if you only have 1k subs or if you have 1m — you just pay a pro-rated price depending on your audience size. That pricing transparency has helped ConvertKit as a lot of their growth comes from word of mouth and goodwill between creators.

The company has been profitable for a while, netting $3m in profit last year. They have no office and the company is remote-first. They have standardised salaries and pay everyone the same indexed rate regardless of where they live.

In another unique approach, ConvertKit distributes 60% of profits to its team members. Over $1.8m has been returned to employees this way using their profit sharing formula. They've also issued over $4m in stock options to the team which has expanded to 60 people across 28 different cities.

They’re also still growing at 2.3% a month (~30% YoY). Bucking the venture investment trend, the company is bootstrapped. They’ve only raised $1.8m from 6,500 customers who could invest using a credit card if they wanted to — another novel concept.

Nathan attributes a lot of their success to a few key principles 1) remaining focused 2) sticking to a niche and 3) keeping in their lane. The mission hasn't changed. While their competitors have moved into adjacent markets to take a larger piece of the pie, they’ve stayed dedicated to one goal — ConvertKit is all about empowering the creator economy.

On that theme, they just released a paid newsletter feature. The payment fees are just 3.5% compared to 12.9% for Substack. So ConvertKit is moving from audience building towards audience monetisation. As Nathan suggests below, he sees ConvertKit as Shopify and Substack as Amazon. It's going to be interesting to see how these two companies carve out different competitive footholds in an exploding market. Which one will have the better staying power?

Nathan himself references Tim Grahl’s book, Running down a dream on the subject of persistence:

The only thing that matters is that you keep going. The only way you truly fail at a marathon is to stop taking the next step. Sometimes you’re running, sometimes you’re walking, and sometimes you’re crawling. It doesn’t matter. If you’re moving forward, you will succeed.

Recognising when to quit and when to double down is a key entrepreneurial skill. Only the founder(s) can really answer this question. Is it time to quit or does the product just need more focus? Should you shut down a failing product?

Thankfully Nathan and team had the tenacity to keep going and they've created an unstoppable juggernaut. I've no doubt that this momentum will continue for years to come 🚛

Trend 📈

The workforce is probably going through the biggest unbundling since the agrarian society was replaced by urbanisation, mass production, and corporate employment. The prediction is that >50% of workers in the US will be freelancers by 2027. In the internet age, innovations like Starlink mean that anyone can literally work from anywhere on the planet.

Digital platforms are empowering individuals to create products, attract customers and earn an income without needing an employer. These individuals are no longer tethered to a specific role in a particular place. They are are using their knowledge, networks and unique creativity to prosper in the attention economy.

ConvertKit has successfully surfed the creator economy wave. This macro trend has been happening for years but it's recently reached a tipping point. Li Jin talks about how the Passion Economy has graduated from the Gig Economy (which rose along with the likes of Uber, TaskRabbit and others).

The new economy is liberated from the constraints of any pre-defined work as dictated by the platform. Instead products like ConvertKit are giving their customers the tools to build and grow their businesses while leveraging their unique creativity.

And these entities are becoming big companies of one. The top Substack author generates over $500k annually. Podia has creators that bring in over $100k a month. Teachable has hit a new gear thanks to Covid — 100 creators have now made over $1m on it.

To get a better sense of the trend, I thought it would be interesting to see how one vertical in the creator economy has evolved — the education/learning space.

  • The first generation of platforms supporting creators were ‘MOOCers’. They had no human accountability and learning happened asynchronously. As a result, completion rates were usually below 5%. Still they created a new source of income for a whole new class of creators.

  • Then you had the 'Group Supporters' who allowed creators to build audiences with fans in a much more interactive setting. Facebook groups paved the way. Since then a number of dedicated platforms have emerged like Circle and Mighty Networks.

  • There's also been a move toward synchronous learning with the rise of Zoom, YouTube Live and other event tools. These 'One Time Eventers' operate without any real human accountability. Instead, the hook is the live engagement element. Startups like Hopin are growing exponentially to cater for remote conferences and courses.

  • The latest trend is a move towards 'Community Accountablers' which merge synchronous learning experiences with human accountability. New platforms are emerging to capture this shift (the Udemy founder Gagan Biyani and altMBA founder Wes Kao just launched their NewCo).

OnDeck has moved into writing, investing and scaling startups based on the success of their original founder fellowship programme. 86% of Lambda School graduates are hired within 6 months and make over $50k a year. These cohort based courses are proving the most effective in driving learning outcomes.

And a number of bootstrapped companies have also emerged to carve out specific niches. CourseMaker for example is focused on technical course authors starting at just $9 a month. So each vertical in the creator sphere will have sub-verticals as the market expands. The flywheel between creators, fans and distribution platforms is only accelerating as the concept of work becomes more loosely defined. What a great time to be a creator 👩‍🎨

Interesting Reads 👓

4 Pillars of a Successful Productized Service — Robin Vander Heyden

We just hit $1M ARR for the second time. Here's my best advice. — Baird Hall

How We Designed A $230K/Month Wearable For MusiciansStarter Story

Resetting Online Commerce — Ben Evans

How to enter the mind of your customer: A two-step guideUX Collective

Why You Should Do A Tiny Product First — Amy Hoy

Worthy Podcasts/Videos 🎙📹

This is a great two-part podcast about innovation between two of the greats — Naval and Matt Ridley.

Helpful Products & Resources 🛠

Raycast — lets you control your tools with a few keystrokes

My favorite product management templates — a huge collection of helpful PM frameworks and artefacts from Lenny Rachitsky

CuriosKaren — a novel approach to doing conversational surveys

Demand Curve — a startup growth program combining hands-on mentorship and step-by-step growth playbooks

Trend’In — find mentions on LinkedIn and use them for direct outreach

And from the Twitterverse...

An interesting thread from Pieter Levels, founder of NomadList and Remote OK. I think he’s on the money here — the era of the sovereign individual is just beginning 🌍

Charlie calls out what we’re all thinking anyway 🤣

This is a good thread about personal runways and the importance of having a clear financial path mapped out 💰

On the theme of focus, I’ve decided to take a break from writing these weekly newsletters. I’ve really enjoyed writing again but I’ve got other commitments to prioritise right now. Thanks for reading — it’s been a pleasure. See you in 2021! 🤙