The SaaS Podcast
SaaS Recurring Revenue: Lessons from a Former MMA Fighter – with Dan Faggella 
SaaS Recurring Revenue: Lessons from a Former MMA Fighter
Dan Faggella is the founder and CEO of TechEmergence, an artificial intelligence market research firm. TechEmergence helps companies to gain insights on the application and implications of AI and machine learning technologies.
Prior to launching TechEmergence, Dan founded Science of Skill, an eCommerce business which he grew from zero to over $2 million in annual revenue in 4 years. He went on to sell that business for 7-figures.
Dan is a very interesting guy. He's actually a former martial artist and MMA fighter who has been training other fighters. And Science of Skill initially started as a blog where he could teach more people.
So what does this have to do with SaaS?
Firstly, there are some valuable lessons that Dan shares on how he built a recurring revenue business. Those lessons will be useful for anyone focused on SaaS recurring revenue.
Secondly, he talks about how he generated traffic for Science of Skill and a systematic approach he took to convert as many leads as possible into customers. So if you're struggling to find customers, you might get some useful tips.
And thirdly, I think it's crucial that he thinks outside of the box and learn from people in different industries and types of businesses. I think that's how we can find more creative solutions to problems in our own space.
So I hope you enjoy the interview.
SaaS Recurring Revenue: Lessons from a Former MMA Fighter
[00:12] Welcome to another episode of The Saas Podcast. I'm your host Omer Khan, and this is the show where I interviewed proven founders and industry experts who share their stories, strategies, and insights to help you build, launch, and grow your Saas business. On this episode I talked with Dan Faggella, the founder and CEO of TechEmergence and artificial intelligence market research from TechEmergence helps companies to gain insights on the application and implications of AI and machine learning technologies prior to launching TechEmergence, Dan founded Science of Skill and e-commerce business, which he grew from zero to over $2,000,000 in annual revenue in four years. He went on to sell that business recently for seven figures down is a very interesting guy. He's actually a former martial artists and MMA fighter who's been training other fighters and science of skill initially started as a blog where he could teach more people.
01:13 So what does this have to do with SaaS? Well, firstly, there are some valuable lessons that Dan shares on how he built a recurring revenue business. Those lessons will be useful for any SaaS entrepreneur. Secondly, he talks about how he generated traffic for Science of Skill and built a systematic approach to convert as many leads into customers, so if you're struggling to find or convert customers, you might get some useful tips here. And thirdly, I think it's crucial that we think outside the box and learn from people in different industries and types of businesses and I think that's how we can find more creative solutions to problems in our own space. So I hope you enjoyed the interview. Before we get started, I wanted to tell you about a free resource that you can download. It's called the SaaS Toolkit, and it will teach you about the 21 essential tools that every business needs. If you'd like to get a copy head over to theSaaspodcast.com. Also, if you need help building, launching and growing your business, then you should check out SaaS Club. Plus, it's our premium membership and community designed to help you get the insights, motivation, and support you need to succeed. You can head over to saasclub.co to learn more and join the wait-list. OK, let's get on with the interview. Dan, welcome to the show.
[02:35] Omer, glad to be here with you brother. This is fun.
[02:36] So let's start by talking about you getting inside your head. What gets you out of bed everyday?
[02:42] I hate to say part of what gets me out of bed every day is like the grand philosophical considerations of what's after people and were kind of neurotech and artificial intelligence are ultimately taking us. So that's part of it. That's kind of like the, uh, the gloomy bit that shakes me up. I think the exciting bit is, uh, is growing a company with people that I really like working with. So I think team comradery and a worthy moral aspiration I think are probably the big ones for me, man. Tell me a little bit more about TechEmergence, like how did that business start? What are you trying to solve?
[03:16] So when I got out of graduate school studying cognitive science at the University of Pennsylvania, I actually became reasonably convinced that actually kind of neuroscience and cognitive science would be important, but maybe not as ethically grandiose as some of the innovations and artificial intelligence and that probably within my lifetime this is maybe 2012 that probably some some point within my lifetime, I'd likely see intelligence is sort of beyond human, you know, at some point the next say 50 years and that the moral implications of a sentience and intelligence that's greater than, than humanity would be maybe the single most morally important thing that I could conceive of and that maybe I should dedicate my entire life to that.
[03:59] Now the problem Omer is that that's a moral purpose, not a business model. So what I did initially was I did a ton of interviews, a ton of speaking at universities from kind of the cognitive science perspective, which is where I come from and a lot of writing on these considerations of kind of the posts, human scenarios while I grew an e-commerce business in order to fund TechEmergence. So finally, over the course of growing an e-commerce business and selling it, now I don't have to raise money during that period of growing that business, I sort of came to terms with what a business model would be for TechEmergence, which is more or less connecting artificial intelligence vendor companies to business buyers. So we have tens of thousands of business leader folks in the pharmaceutical space, the banking space, the automotive space, and other very large and important sectors who have, uh, an explicit interest in AI.
[04:47] And we basically take payments from vendor companies and service companies that help those bigger firms integrate artificial intelligence or find AI solutions. So we're sort of a, a platform for connection in that respect. But to be honest, Omer, it started very much as a, a moral purpose with no business model, which is why I grew another business to fund it.
[05:08] That's a great story about because we are going to spend a large chunk of this time talking about that ecommerce business
[05:17] But I didn't realize that that was only a means to an end.
[05:22] It was, it was explicitly a sacrificial lamb. So the moral cause of, of what I ultimately wanted to do with my life occurred actually probably close to the end of 2011 and Science of Skills started 2012 or 13 basically as a way to bide some time to figure out the business model for TechEmergence as I explored that market and make it Omer so that I could fund it myself without needing to give away a huge percent of equity because to be honest, that moral purpose articulated certainly I think we're gonna have the potential to become a rather large enterprise and do very well financially. But the moral purpose is something that venture won't care about. So I needed my own seven figures instead of somebody else's. And Science of Skill was essentially a sacrificial lamb for cash to let me do what I really want to do with my whole life.
[06:07] I just watched West World on HBO last week.
[06:11] Oh yeah. I've never, I've never seen it, but a lot of people tell me about it.
[06:14] Yeah. And, uh, it kind of plays out to maybe some of those scenarios that you weren't there
[06:20] if I heard it, I've heard about it for sure. I think that it's, you know, has dystopian elements from what I understand, and I'm not sure if that's going to be what the future looks like, but I think it opens up some valid questions about what do we do with certain levels of intelligence, what's the fate of serve humanity emits those transitions. Um, and how was that managed and how do we, we kind of understand that morally. And I think actually fiction does a good job of making people think about it. So cool to see that you've kind of dug into a bit of that.
[06:49] So we're going to talk about Science of Skill, this e-commerce business that you build. And I want to kind of set the context for anyone who's listening is, you know, this is a SaaS podcast. So why are we talking about e-commerce? Well, there are a number of reasons. And firstly, there was a big recurring revenue component to that business, which we think
[06:49] 85% of our revenue is on rebuilt. Yeah.
[07:13] And also I'm a big believer that when it comes to business looking outside of your own industry or vertical, whatever space you're in and looking at what other people are doing in other areas can be a really insightful way to come up with new ideas or new ways of running or building or growing your business. And so when you and I started talking, that was the immediate thing that hit me was that there are a ton of lessons that we can learn from what you did with building Science of Skill from zero to $2,000,000 a year business. So that's really the context here. And I think that I'm absolutely confident, you know, having spoken to you and knowing your kind of background, that there's going to be a ton of value for anybody who's in the SaaS space from listening to this.
[08:07] Totally. And I will say I learned a lot from sas people when I was growing our own recurring revenue. So what metrics attract. So your point about learning from others, you know, SaaS people were probably half the folks that I talk to when I was brainstorming on how to get it to multiple millions in revenue. So I am a believer of that philosophy, my friend.
[08:26] OK. So let's talk about how you came up with the idea for Science of Skill. You talked a little bit about the need of having this business to fund TechEmergence, but specifically with where did the idea for this business come from?
[08:36] One story again. OK. So two things. I ran a martial arts academy for a long time. I won a national championship as a brown belt in Brazilian Jujitsu here in the United States and trained fighters and I actually ran a mixed martial arts gym. So Omer, the way that I paid for college and the way that paid for Ivy League graduate school was basically training fighters and training people in martial arts. So I was doing a lot of competing myself, a lot of seminars because I just, I've never been morally capable of employment, uh, for myself personally. So I basically ran a fight house and by the time we sold it we had about 100 students. My town is only 4,000 people, so hundred students is actually a reasonable segment of the breathing population, but little small town. And what happened Omer is I was doing a lot of competitions against bigger opponent, so I was fighting guys and actually a number of guys who are professional fighters, one of whom the famous matches a UFC fighter guys name is Pat Walsh and this is like a guy with a hundred pounds on me, huge wrestler, fights in cages, been on TV, big name. And I ended up submitting him. So tapping him out, defeating them in 12 seconds with a leg lock.
[09:42] So some kind of very fancy kind of ornate Jujitsu leg lock technique. And there's a number, a number of matches. Similarly where I'm fighting guys twice my size, I'll walk around over at about a hundred and 25 pounds. So I'm a pretty small fellow and as it turns out that stuff really resonates well on the Internet for some reason in the martial arts world. Little Guy Beats, big guy is like way fun like people love that kind of thing. So that video started getting a lot of use and so are getting a lot of comments and I started getting a lot of emails about how to defend yourself against someone larger than you. And that made me think, oh man, you know, I got this brick and mortar gym, maybe I could go on the Internet here and find a much larger audience than my little local market and maybe that would be the easiest way to build kind of a cashflow positive company to fund my dreams. So that's kind of how it got started.
[10:35] So there's a video on youtube of you taking this guy out in 12 seconds?
[10:40] Dan Faggella versus the giant. If you go on Google, it's literally like a 30 second video. So I'm not going to take you along to watch the Dan Faggella versus the giant. The Guy's name is Pat Walsh, he's a UFC fighter, 200 and something pounds of muscle in division one wrestling and yeah, it was, it was actually a toehold, which is a way to attack that kind of goes after the ligaments in the ankle. So kind of a funky, funky little tail there.
[11:04] How did you get to the level to be able to, to defend yourself against somebody like that? How did you train? Uh, well, yeah, this is its own story. So actually this is kind of part of Science of Skill. The Science of Skill began as a blog, Omer where I was not selling anything. We're not doing anything. It was a blog while I was going to graduate school. I focused on the science of skill acquisition, so wouldn't, you know, um, or I started a site called Science of Skill, right? So I was actually studying quite literally the science, like in graduate school, like with the founders of goal setting theory and researchers who actually work on skill development in music and memory and in, in other domains, in athletic performance. And so that was kind of the scientific side of things. And so I was learning about this and kind of developing drilling regimens and training regimens for myself to see if I could guinea pig these kinds of academic ideas to go out when frickin trophy, just, you know, see if I could choke out some big guys and bring home some metal.
[12:02] And so Science of Skills was just a place to experiment with those ideas. So essentially the biggest things for me or uh, in this domain we're studying and then actually paying to train private lessons with the best lightweight grapplers in the world. So everybody under a hundred 40 pounds who had won one or more world championships, I was basically doing everything within my power to learn from them one on one and get tailored feedback on what they thought I should be working on. And so that combined with some very specific kind of drilling and training methods with my own students was what brought me to a level where I could actually bring home some shiny stuff at the bigger tournaments.
[12:37] So how tall are you?
[12:38] I'm less than five. Six. So I'm like, if I said five, six, I'd be lying. I'm like five, five and two thirds.
[12:45] And then a hundred and 25.
[12:47] So pretty small guy. I don't know what happened. I must have not got enough oxygen in the womb or something.
[12:55] You're lean machine. Love it. I'm a little felt. So that was the story, man. Yeah, that was the beginning of it. And OK, I'm going to include a video in the show notes of fun.
[13:03] It's fun. Yeah.
[13:04] So you've got this idea for Science of Skill, but it's already started because you've got this blog. What point did you start to turn this into a business?
[13:16] Yeah, Science of Skill had a couple of popular videos up on the internet and I turned it into a business the very end of 2012, the very beginning of 2013 basically. I taught a bunch of seminars and I was teaching seminars actually about the things that people were asking me about online. So on the Internet everybody was saying, how do I beat bigger opponents?
[13:35] And I started to think about all the lessons I learned from the best of the best lightweight world champions. I interviewed these guys, I pay to train under them and I started congealing that into kind of sets of techniques and philosophies that would actually work and kind of was the same stuff that I was using in my own tournaments. And so I filmed that Omer, I recorded that and sold it as like a two hour video thing for I think like $49 or 40 something bucks. And I included actually some of the PDS that I use for my own drilling and training. So it's kind of the way that I structure my own sessions for training and sold that actually initially just with PayPal and with an Aweber account. So that's how high tech I was, uh, back when I first started there. So that was essentially the origins of it.
[14:18] I film something and I said, you know what, I could probably put up it really ugly landing page under this, this video or something. And I could say, hey, you know, if you want to learn all these methods than I've worked really hard to build something great for you and here's where you can buy it. So that's kind of the start.
[14:18] And how did it do. How were the sales?
[14:36] The initial little tiny thing that I did there, I actually sold that and then I also sold I think a leg lock course because leg locks against bigger opponents are really effective and people love that stuff on Youtube. So I did like a little course like that that kind of went along with it and I think together it was maybe like 1200 bucks or something. It could have been two grand by the end of the week, but I remember like in a couple days it was like 1200 bucks.
[15:00] Which at that point, because it was just a digital product, it was definitely not paying for all the time I put into it. I mean I'd put so much time for this stuff and it was really not at that level, but at least proved to me over that hey, if you can get a specific targeted audience, I think we only had about 350 people on the email list that you have a decent relationship with. You might be able to actually build a pretty good margin, a company off of sort of a targeted list of that kind. And so my thought from there was OK, well I need to figure out how to turn this into a subscription and I need to sell this thing for a million bucks, so let's do everything in our power to do that. And so that was kind of the, the journey from there. What is viable time to make it recurring and time to, to grow it and fund my artificial intelligence dreams.
[15:46] OK, perfect. So we've kind of set the scene of how you got to where you were and what you need to do. It's kind of like the hero's journey. Walk me through those early days and how you started to think about building this recurring revenue and what were some of the first things that you tried doing?
[16:10] In the beginning Science of Skill actually pivoted. So just so everybody knows this, we started off very specifically in the Jujitsu martial arts market and then by the end of the company we actually pivoted fully into the broader kind of self defense market, which is a much larger market that encompasses almost everybody that has a firearm that encompasses not just with an interest in, in self defense who doesn't necessarily train, but when we started omer was just for Jujitsu. So the early days were all about trying to get as much communication as we could to figure out what we should build. So actually one of the things I think I did well and this might have been from reading some Eric Reese or something, was we took all the folks who purchased products and I would basically spend like half an hour calling random buyers and like saying thanks and then asking them, you know, how did you hear about us?
[17:00] And then focusing a lot on what are your goals in Jujitsu? Why did you want to buy this? What else do you want to learn? And essentially get a grounding on two things. Number one, who are they and what do they care about? Number two, what do they think they really want and need, and then I kind of just had a big excel sheet full of this stuff and this is maybe two or three months in where I spent two weeks calling a lot of these guys and essentially congealed some of those insights into what we were going to build for our, for our membership. So that was kind of the very early days was a lot of customer communication and a lot of sales are very small digital courses. $40, $17 courses
[17:38] And what did you learn from that feedback?
[17:40] A couple of big things. I could literally talk for an hour about our Jiu-jitsu buyer because I know this person so well. I know this aggregate human being so well, but basically I learned 41 year old males were the people who are spending money on this stuff. It wasn't 20, 24 year olds like me, so I learned that that was kind of a big thing. These were guys that only trained maybe two or three times a week. Probably most of them actually probably train once or twice a week. They just exaggerated a little bit and that they were most attracted to what we were already doing, not because they were small guys and they wanted to fight bigger guys, but because they were a little bit older, weaker, less athletic, and they needed ways of beating someone bigger than them and they figured, hey, if it works for this little puny, you know, rough guy over here, then it'll probably work for me as a guy who, who, who's not exactly, you know, a peak athletes.
[18:28] So we learned that the pole, the attractiveness was not because these were small fighters, it was because they liked me, were not able to rely on strength and power to gain their victories. They needed tactics and strategies to defeat larger and stronger folks are even just stronger folks, even if they were of equivalent size. So we learned a lot of that. We learned that leg locks and escapes were really big pain points. We learned that everything that had to do with submissions and like ways of finishing fights against bigger opponents. That was like the sexiest, most fun, coolest thing for these guys and they wanted to learn that more than anything and so we get some great feedback about what they liked and didn't like and who the heck they were and that allowed us to kind of feel confident and it was really just me.
[19:11] I had at this point, he was really kind of more of an assistant Tim. He became my right hand man. He's awesome marketer now, but we were both very much newbies, but yeah, I felt confident with where we want it to build the membership site after a lot of that feedback and then it came time to building out the marketing automation and doing all the email stuff to to get the growth and make it a full time business.
[19:31] Had you been doing that kind of stuff before in terms of online marketing and marketing automation or was that new to you? Some of it was new, so e-commerce was new to me, but over the Jujitsu Academy that I started in order to pay for U Penn was essentially built by a combination of SEO and marketing automation. So when you live in a town that's like 4,000 people Omer, what happens is even if you ranked number one in search, you still only have access to so many humans.
[19:59] Do you know what I'm saying? So I come from a very, very small place in the world and so what you have to actually get good at is you have to get good at the art of taking every lead and having the highest percentage of conversion to an appointment. Then the highest percentage of conversion to a sale like a member, and then also you have to have the highest possible kind of retention or pullback of those people if they do ever leave or when they do join and whatnot. So it's more of actually kind of a conversion optimization problem because there's actually a ceiling to sort of the number of humans who have access to. And so I was kind of forced just given that circumstance to learn Infusionsoft and other marketing automation tools to really do a lot of segmentation and kind of campaign work to squeeze as much juice out of every orange that we had come through the system as possible. And so that was a mentality I was forced to build in order to, to grow a little six-figure martial arts gym. And I decided I was going to apply those same ideas on the Internet.
[20:55] So you know, a lot of people when they're starting out a business, they look at something like an Infusionsoft or similar products and they say, you know, that's a bit of a hefty investment. I've got to spend maybe a few thousand dollars to kind of get this up and running. I've got to spend several hundred bucks a month, maybe more to keep this thing running. Why don't I just go and spend 10 bucks and get a Mailchimp account? What would you say were the benefits of you starting to invest in some of these more expensive technologies earlier on?
[21:31] I think to each their own, I think everybody's going to develop what their Ninja skill is and it just so happened that marketing automation, email marketing, kind of conversion rate work was was where I personally focused, so my own argument over, and I'm not sure that I would necessarily paint this on top of everybody who's listening, but I'll. I'll just say my own argument was that for me, I felt pretty confident that if I could automate like whatever I would do manually within Mailchimp, like OK, I would want them to get this message in this and under these circumstances I'd want to do this and under these circumstances I want to do that. If I thought about all those ideals, like what would be the ideal number of days before this happened, or the ideal number of ways to segment people so that we can have the highest open rates or whatever.
[22:17] It just felt like, man, that would definitely involve segmentation. It would definitely involve kind of action-based triggers and I just can't get that done in existing tools. So we did have an Aweber account when I first started. I had all these different channels and campaigns and separate things all built out that were really tough to communicate and tough to keep organized and so I said, OK, I'm just going to make the leap and a pull everything together in more of a marketing automation context and for us it turned out to be the right move. But, uh, that was kind of the rationale, Omer, was that if I want to make my best marketing happen automatically and if I want the most targeted messaging hitting people right off the bat, I'm going to need a tool that can at least do that. And there's other tools like clavio and there's all kinds of competitors to Infusionsoft today, but Infusion just happened to be the one that I went with when I was, I think I bought them when I was about 22, 23.
[23:08] Yeah. And I think in the this space, um, there's a lot of people you're looking at products like Drip and Active Campaign, which will still do a fair amount of marketing automation as well for sure. That's true. OK. So you've got the Science of Skill blog up and running. You've started to build some online presence because of this YouTube video. People are coming to you and asking questions and wanting to know more. You created a couple of one-off courses that you sold and made you know, a few thousand bucks from that. And so when you move to the recurring model, I think the first thing certainly in this type of business is what are you going to keep offering them every month?
[23:54] Well, part of that was the reason that we were pulling them and asking them and talking to them and all the rest of that. And so what we ended up doing was kind of taking the curriculum, so to speak, partially the curriculum that I was teaching my own students, but also kind of mixing that with the tactics and strategies of beating bigger opponents and sort of turning that into monthly blocks. So how could we basically have focus areas that would come about every month and how can we stretch that out for, you know, 18 months or so for a full program. How could we not only take techniques, but we also did match breakdowns of little guys beating bigger guys at a high level, like black belt level. We also did interviews with the same guys that I was paying to do the private lessons with all these lightweight world champions.
[24:38] We're doing interviews with them and then also providing kind of the drilling structure and training training regimens that they'd want to apply themselves in the gym during sort of their time training with us. So to make it robust, I think it had, it had to involve a lot of things that they would not have been able to find elsewhere. And I think the breakdowns, the interviews and kind of a very specific curriculum was enough to get a reasonable rate. I don't think you're in the information marketing world, Omer. You're never going to have 98 percent month over month retention. It's just not, not a realistic thing in the information subscription world, our world, the information, this subscription world is a lot more like the magazine world compared to the, let's say, the SaaS world. But uh, we were able to get it so that the average customer lifetime value of a member was a little bit over a hundred bucks and that became something that we could kind of predict and understand and use for kind of a projected cash flows and stuff like that. So that was essentially the offering was something pretty robust that they wouldn't be able to find elsewhere that they said they really want want it and put that in an organized curriculum that would be rolled out and released month over month.
[25:48] So how much were you charging them? A monthly or annual basis?
[25:52] We got off the ground, I think it was 37 bucks and I think it was again, one or two interview breakdowns, a whole bunch of videos on the video curriculum side of things, at least one interview and then a whole set of PDFs around kind of drilling and training materials. So it took a while to build it actually. But yeah, that was, that was essentially the, the brunt of what they got there.
[26:12] So $37 a month.
[26:15] Yes. Thirty seven a month. I believe in the early days we sold it 37 upfront and then 37 a month and I think as we move forward, we moved into, we would get them a trial for like $9.99 for 14 days and then they could stick with the membership if they liked it.
[26:31] Now, one of the things that I've seen with people creating these kind of membership sites is some of the mistakes that people make and the reason I've seen that is because I was about to make some of the same ones, so I had been planning to launch your membership site behind this podcast and that launch recently with a group of founding members, which is called SaaS Club. And um, you know, I spent a fair amount of time investing in training and kind of learning about the different models and how to avoid making the mistakes that maybe other people have made. And there's so many things out there in terms of are you providing the right type of content. A lot of people will leave if you provide too much content and there's too much, you know, they feel overwhelmed. How were you learning about this week? Did you kind of go somewhere to learn like you did with the martial arts or did you just jump in and just experiment and see what worked and what didn't?
[27:31] A big thing for me, Omer is always learning from folks who've done it before and so I actually didn't really have the money to pay for very much consulting around this stuff, but I did look at companies who had done this pretty well and there were some folks in the fitness niche who had done a good job of this. They were doing like 20 or $30,000,000 a year and at the point when I was doing, you know, two to three grand a month. That was a good enough benchmark for me to say, OK, that's what they were doing. The other businesses we looked a lot at home or with sports illustrated. So when I looked at who are the billion dollar companies that are selling subscription information, really one of the quickest answers was sports illustrated. So how do they do their front end offers and then what do they include along with their magazines and what's kind of their value prop to keep people around and actually looking a lot of their marketing materials, particularly for their front end offers, what's going to get people through the door to sign up for a subscription in the first place to try to get in initially on a subscription and so sports illustrated or the people I kind of learned from didn't really learn from consultants there. I just kind of. I had a reference point of a couple, you know, a healthy eight figure fitness business and then I also had the reference point of how the heck does sports illustrated convinced you to keep paying for magazines? And those were sort of what I had to run with.
[28:40] So you just looked at successful models that you saw out there and try to kind of break down what they were doing and sort of reverse engineer that to fit into your business.
[28:51] Exactly. And I mean it's, it's a classic Shebang, right? Whenever, whenever you're kind of unsure of what to do next, the odds are, you know, one of the safest moves, not always the best move Omer, but one of the safest, most particularly the early days is who, who are like the ultimately dominant, absolutely best folks at this and what do they kind of do is their norm. And then how can you kind of model that, you know, if uh, if you want a good default, usually that's a good default. And so that's what I sort of did off the bat in terms of coming up with our front end offers because I said, man, how does sports illustrated price it? How do they break it down? What do they include? Uh, how do they make it enticing and how do I learn from their marketing? And so it was kind of sports illustrated was by far the biggest business.
[29:31] That was an inspiration for me to get started because they're billion dollar company, but there was a couple other information marketing folks who we thought were doing a good job as well. So that was really it. That's kind of how I had to pick up on it and then otherwise Omer was just getting feedback from people, so we actually had a small survey at the bottom of every month curriculum, so we would get people's feedback on month to month, three feedback on one floor and we learn different things like, Hey, I wish that you had a highlight under the videos that showed at what point each new techniques started so that I could kind of skip ahead if I didn't want to watch the defense stuff. And we'd say, Oh God, OK, that's actually a decent idea. Maybe maybe there's other people that want that. Maybe we'd send out an email to a segment of 200 people that that had access and we'd say, is this relevant? Then you guys want this? Is this cool? And then maybe we'd plug it in there. You can't do that with every suggestion, but we learned enough patterns to kind of update it a little bit and then otherwise run with best practices of folks who were putting up 10 figures.
[30:28] Ok. So you know, getting a few thousand dollars a month is a great start just from for any blog, but it's a long way away from getting $2,000,000 a year, which is when you go to in four years. So what were the growth tactics or strategies that worked for you? How were you generating traffic? How were you getting people to your site?
[30:49] Love it. So I'll get into two parts of this Omer. I'll get into how did we generate traffic and then we'll also get into how did we convert enough of them to build a multi-million dollar company and you'd get an inc 5,000 and all the rest of that stuff. So there's two points. You brought up a great point. How did you get your traffic? We definitely have to start there. So one mistake that I made early on Omer was that, you know, I focused a lot on optimizing the back end because in my small town there was only so much traffic to drive for my martial arts gym. So most of my time was focused on conversion rate optimization. But on the Internet, you know, there's a lot more traffic sources, so I'll talk about those first when we got off the ground Omer. the strategies that I use. And uh, and uh, I'm actually still a really big fan of these, one of which was doing a lot of guest writing in columns in other Jujitsu and combat sport related publications where we could build up a little bit of google juice and a consistent flow of what kind of referral traffic and notoriety on other platforms. So this was manual work, this was a grind. But Omer, I did not have money for facebook advertising and Google advertising and any of that stuff.
31:54 I had none of that. I had a martial arts gym making enough to do OK. But I didn't really feel like spending those profits on Google ads that I weren't sure if they would work. So actually orchestrating guest writing in a bigger way, which was a pretty big part of our strategy. And also having a consistent amount of weekly content on scienceofskill.com that covered the exact topics that are email readers were saying that they want it. So basically writing the most appealing stuff on our site and then also writing related and very appealing stuff on six or seven other sites in that space. So that was a serious grind in the early days, but that is what got us to a couple thousand dollars a month in revenue was just those subscribers. From there we actually moved into finding ways to incentivize people on an affiliate basis.
[32:38] So the the channel that got us to 1,000,000, which is different than the channel, like us 2,000,000, but the channel that got us to 1,000,000 was finding affiliate arrangements. So Omer what we did is we found people with huge Facebook pages with huge blogs, with huge email lists and we would find a way to incentivize them promoting some of our products by paying them. And in the early days we would pay something like 70 or eighty percent of the ticket price of a product we would pay to the affiliate. So we would pay a huge sum of money to whoever drove the front end sale because we would keep the email address or we could sell things on the backend to kind of make up those dollars. But what we ended up doing on the frontend was essentially just paying people very handsome sums for selling, let's say $40, $60, $70 items, and if they sold a subscription we would just pay them 50 bucks up front because we knew our ultimate customer lifetime value.
[33:31] So that affiliate channel was a big deal finding basically who already owns the audience, finding the best way to get them on the phone and say, Hey, I know what your goals are. I think we could probably drive you a lot of bucks by finding a good way to kind of support each other here. What kind of arrangement would work for you? And so negotiating those deals with a variety of affiliate partners is what got us to 40, 50, $80,000 a month in revenue.
[33:57] Ok, so were you writing all the content? I was in the very early days and then as soon as I had a little bit of bucks coming in, probably when we got to two or three grand a month, I had a guy named Jake who would write four articles a week for me. Jake was a very good writer who's also a martial arts student of mine, and so jake was doing probably 80 or 90 percent of the content production as soon as I could afford it.
[34:18] In the early days of the Omer, it was just me, but then literally as soon as I had the money for it, I would just give Jake four assignments a week and then I would kind of get them from him and I would publish them on our site and elsewhere as well. And so when you had Jake on board, how were you spending your time when you got up every day? What was the one thing or the two things that you would go after? So two big things. One was continuing our internal promotion and communication. So the email list was our main channel. So really making sure that I had a good content of material to send to those people and a good way to sort of build up towards whatever our next product was. So sort of, you know, building up some excitement, getting out some polls, figuring out what people wanted and kind of working our way to an upcoming release or something.
[35:04] So what's the proper way to communicate internally that's step numero uno. And along with that, Omer actually was setting up the marketing automation systems, so when we were doing a couple of grand a month, which wasn't much, but it's my martial art, humans doing maybe five, six times more than this. So this was still the side project at this point, but I started having to build out the same kind of spider and splintered marketing automation processes that we had for the martial arts gym. I started building for the Internet. So in addition to internal communication, just with broadcast email, I always building out what are the right ways to segment and slice our audience. So for us, we've people who were competitors, for example, we had a separate kind of list is separate way we would market to them, we would segment out folks who had an interest in kind of defensive techniques and we had kind of different campaign in way that we would promote to them and all of these roads ulmer would lead to the subscription. So if you go to sports illustrated, for example, you'll find that sports illustrated will promote to people in New England with some kind of patriots gear. Hey you can get this patriots hat or this patriots football shape telephone or this patriots plaque or whatever it is. And it will also come with a subscription for sports illustrated, but they don't sell a patriots plaque in California. You know what I'm saying over.
[36:15] Yup. Yup.
[36:15] So they're basically targeting what do we think is going to generate an initial conversion based on what these people care about, but can we still make it relate and tie directly into our core offering, which is a subscription. So for me Omer, I had to decide, well what are my sports teams? Sports illustrated has a way of segmenting their audience, how do I segment mine, and so we had competitors, we had folks who are interested in defensive techniques and leg locks, and we had kind of four or five core segments that almost everybody fit into. We would pull them and then we would send them down the right channel in order to have the highest chance of conversion and that generated maybe 50 percent more. If we had let's say, 200 opt-ins, we would get 50 percent more people sign up to pay us every month if we splintered and segmented out our marketing than when we just had one cold communication that went to everybody in a templated way so that that ended up kind of being a very, very important place to spend my time. And then the rest of it was negotiating with affiliates, finding them, getting them on the phone, and encouraging them to promote.
[37:13] OK, so just kind of recap that in terms of content. You were creating content for these guests, posts that you were doing and then having Jake on board to continue doing that on a weekly basis. You were also creating content for the Science of Skill website, both in terms of you know, the free content that people would see and then you were also regularly creating content for the the subscribers.
[37:42] True. Yes. The content for the subscribers and then also evergreen content that would go into the marketing automation systems that would go out to subscribers, so stuff I'd send every day and stuff that would be sent for the first 14 days for, you know, any given lead who filled out a survey in a certain way
[37:58] and that was it. Those were the things that boiled down to and then you just kept on executing on those
[38:04] to get to our first million bucks, a million bucks a year in revenue. Those were really the big ones. It was a lot of content marketing related traffic, a lot of sort of internal marketing automation and segmentation. So instead of sending one big broadcast omer to let's say everybody on the list, they all get the same message. Instead of doing that, we would slice and dice the email list into these different segments and we would send them different variations of the headlines, sometimes entirely different content, but usually we would just make the content more appealing to them and by doing that on a given basis, if we send a blast to everybody, we would maybe get, let's say 18 percent people would open, 15 percent of people would click, but if we send it targeted to all the different sub segments, we could probably have an average of 25 percent open and maybe 22 percent click and if you carry that out for an entire year, that's like tens of thousands of more views to sales pages which results in tens of thousands of additional dollars.
[38:57] So segmented targeted messaging to our internalists was an extremely important part of growing the revenue. There. You talks about going out and speaking to a lot of Sass people about recurring revenue and we've talked about metrics for sure. This was big for us. Yeah. Tell me some of the key things, some of the ideas that you learned and you implemented in your business. So one of the big ones over that I learned very early on, this is before, you know, before I was able to support myself entirely by this internet company, was that in SaaS, the thing that everybody seemed to be looking for was to have the cost of acquisition behalf of the customer lifetime value. Right? So that was a big kind of metric that a lot of these SaaS guys wanted to get to. And I thought, OK, that's Kinda cool. I have an idea of what my customer lifetime value is.
[39:44] So now I should probably apply similar rules myself. So we found kind of a benchmark that worked for software companies and some of these founders that I talked to her running know seven, eight figures off software companies will say, OK, that's a, that's a rule we should stick with. So if our average customer lifetime value for a subscription buyer as $110, we should pay affiliates probably no more than 50 bucks and we should really make sure that we don't. We don't have too much incentive to ever go beyond that based on kind of what's helped to grow kind of the SaaS folks. The other thing that I learned from SaaS in addition to kind of having a benchmark rule for acquisition price, which we held pretty steady across all of our channels. The other thing that I learned from kind of the the SaaS folks was having dashboards to project your cash flow and to project based on what your revenue goals are and based on what your normal churn is, how many additional folks do you need to add month over month to hit your end of the year revenue goals.
[40:38] It's not as simple as like, oh well we just need x number of more subscribers, so let's add another 300 and then we'll be where we need to be. Well, you've got to factor for the next six months how many people are going to churn out. So essentially Omer building out what for us was a Google spreadsheet because I'm not really an excel guy, but building out more or less what you call an excel sheet. That was a model to represent the growth factors in the company. So Omer, for me as a CEO, a very important thing to do was to say, OK, we want to hit a million bucks this year back in 2015. That was my, my big goal, a million bucks and we wanted a 25% margin if we want to do that, how many people are we going to have to add month over month given our churn?
[41:16] And also if we could reduce churn by let's say even 10 or 15%, how much would that decrease the number of sales we'd have to make a month over month. And Are we able to maybe work on those goals as well? So basically modeling our retention and modeling how retention we tie to revenue within an excel sheet that we could tinker with and experiment with and find new paths to achieve our objectives are financial goals that. Let me think smart. Think with math in terms of hitting our objectives, not just saying, well, let's drive as many sales as we can because sometimes that wasn't the answer. Sometimes it was OK, if we could reduce first month churn by even 8%, the number of month over month sales would would drop by a pretty significant margin. So modeling the business growth, churn, stick and margin relate in in kind of a simple excel doc was a pretty damn big deal for strategizing how to hit our bigger goals in the early days.
[42:11] You know, one thing that strikes me, Dan is kind of thinking about your background. You know, somebody who kind of started out as a martial artist and sort of built that business and and even in terms of at college, I mean you spent most of that time studying psychology. You have such a focus on the math of the business.
[42:39] Omer. I had to learn that the hard way, brother, if you think that that came natural and totally didn't. I'm a Jujitsu guy at the end of the day, so it's an acquired taste. I'll put it that way. It's an acquired taste.
[42:51] All right, so we've talked about the good stuff and we've talked about how you know, you, what, what you did to build this business and eventually go on to sell it. When you look back, what do you wish you had done differently? What were some of the mistakes that you made or maybe one mistake that you feel you made you maybe regret?
[43:11] There's a few things here. Um, what one big one, Omer would be really setting up those metrics ashboards very well early on. So the first maybe 18 months of Science of Skill. I was so frantic just driving sales and trying to negotiate with affiliates to drive traffic, um, that I wasn't really able to get a metrics based pulse on the business. And, and when you don't really have that metrics based pulse, whether you realize it or not, there's always a part of you that's very nervous because you know, you're not in touch with kind of the core reality of where you sit as a company. And so kind of building a consistent metrics dashboard for how well are we doing kind of week over week on, on, uh, revenue and expenses and how, how well is that going to tie to what our monthly objectives are and um, what are we at for current subscribers and how much should we have for churn in the last week and being able to look at all the important numbers and brainstorm on that.
[44:06] If I could go back in time Omer, I would've convinced myself six months in, sit down for like three hours with, you know, your right hand man, which is again tim, Tim Reiss was my, my boy at science of skill. He's still running marketing. They're on in there. They're obviously much bigger than when we started, but I'd want to sit down with him for three hours to say what are all the metrics that we need and what's the exact way to get those metrics. So we're not confused about how to define them, how to define, let's say revenue in a week, subscription revenue, what's the right way to define them and what ones we need to look at every week. And let's have the diligence to take an hour every week and do that. I would go back in time and do that because there was a lot of frantic growth in different directions.
[44:45] It could have been allocated much more strategically. So one thing would be early on, hard thought about the proper dashboard numbers. I would need to make intelligent decisions to grow the company. I would go back in time and I would tell myself that. Um, and if there's one other thing Omer, I would say that, uh, if there's one other thing I would have started with a bigger market. So the Brazilian Jujitsu market was actually quite small. I got to about 45, 50,000 bucks a month in that, in that business. And I realized, man, there's not much more room to grow. And then I had to spend the next 14 months figuring out how to break into the self defense self protection market. Which was a much larger a field and that allowed us to become a multi-million dollar company, but I'm so would've started in a market that I knew was capable of taking scale growing. I could stay heads down in one space and I would know for a fact that I could get it to tens of millions in that space alone. And I did not take the time to think about that when I saw people, you know, liking the videos of, of beating bigger opponents. So bigger market smarter metrics right off the bat. I would go back in time and tell myself that.
[45:52] But I guess you could argue that you did start with a bigger market because you just picked a niche kind of within a big market.
[46:01] Yeah, you're, you're, you're right. You're right. But the, uh, so there is some truth to that and I appreciate you, uh, patting me on the back for not completely screwing up the niche chain there, but uh, but the, the, the fat, the fat part of the, the fact of the matter is we had to change a lot of the content on our site that we would put out on a regular basis. We had to change the contents of our membership site. Omer had to switch over from being primarily kind of grappling in Jujitsu focused into being self defense focused. So we actually really did have to overhaul our core offerings in some pretty significant ways in order to break into the new, into the new and bigger field. There is a possibility that that was the best way of doing it because I already had cloud, I had credibility.
[46:43] I had trophies in Jujitsu and maybe I did go about it the best way, but I think there would have been a smoother way to keep the eye on the prize of a bigger market from day one. But instead we focused very, very hard on a space that really ended up not, and I didn't know this, but, uh, didn't, didn't really grow beyond, you know, half a million bucks our second year running the business, we were, you know, 450 grand and I realized like if I stay in Jujitsu, I'm going to be trapped here forever. I'm never going to get a seven figure exit doing this stuff. So, um, I had to, had to learn that the hard way and pivot all the content and everything that we were doing in another direction. So I would have focused on that a little bit more in the early days.
[47:22] Got It. OK. All right, so let's get onto the lightning rounds A. I'm going to ask you seven questions, just try to answer them as quickly as you can. You're ready? Yes. Let's do it. What's the best piece of business advice that you've ever received?
[47:44] Know your numbers. Uh, you should master quickbooks more than any other software.
[47:50] What book would you recommend to our audience and why?
[47:53] Scaling up by Verne Harnish covers a lot of in-depth case studies of how to get to hundreds of millions with very, very, very actionable advice.
[48:02] What's one attribute or characteristic in your mind of a successful entrepreneur?
[48:11] I haven't had that one before.
[48:12] That's good. A good one.
[48:14] What's your favorite personal productivity tool or habit?
[48:19] I, uh, I'm addicted to a sauna and I'm addicted to brainstorming a, my highest weekly objectives the Saturday before the week starts so that I've got a nice clean slate of all the most important thing for the coming week and my whole team does as well in a saunas where we manage that.
[48:37] What's a new or crazy business idea you'd love to pursue if you had the extra time?
[48:46] Uh man, I, uh, I don't know, maybe I'd still trained some fighters because I liked doing that stuff, man. I like, uh, I like training guys for combat, but to be honest, I'm, I'm, you know, I'm pushing 90 hours a week on TechEmergence. I don't think I'll be able to get back there anytime soon.
[48:59] Do you still train and keep in shape or. I don't, well I have some calisthenic workouts that I do twice a week so that I stay in fighting shape and you know, I'd be capable of handling my own if I had to, but uh, but I actually don't train martial arts formerly anymore at all. I just basically work.
[49:17] OK. Uh, what's an interesting or fun fact about you that most people don't know?
[49:23] Man, I, uh, I love Greek and Roman history. Um, and I, I believe that it's one of the most important leadership lesson sources that I've ever drawn from.
[49:40] And finally, what is one of your most important passions outside of your work?
49:46 Well, yeah, I liked, I like strategy and I like kind of brainstorming on things that by itself is fun and so when I'm not actually doing marketing automation, email and driving traffic, I actually, I like to think about and distill sort of what I've learned about that. So clvboost.com, is the blog where I do that and so when I'm, when I'm not working, I'm often kind of brainstorming on and writing about what sort of has worked well to hit financial goals for the companies that I worked in, for some reason. That for me is actually somewhat relaxing and maybe because I'm distilling what my brain has been focused on all along.
50:24 Awesome. Dan, I want to thank you. It's been pleasure having you on. This is a conversation that we have been trying to get on their calendar for a long time. That is true. I'm so glad we were finally able to do this and have this conversation now. If, uh, people want to find out more about a TechEmergence, they can go to techemergence.com. They can check you out clvboost.com for information on marketing automation and they can check out scienceofskill.com as well too to see what you had gone and done there it's probably changed since.
51:08 I think it has since since I sold I would this Omer, the email marketing and marketing automation strategies that we use to grow science of skill are right on the CLVBoost blog. So people go to clvboost.com basically everything that we did dashboard wiseand email wise is in an article or somewhere up on CLVBoost for free. So clvboost.com probably is where they learn about what scientists will actually does. If they want to see some martial arts stuff on a website, they can go there, but if they want to learn kind of how we grew that thing to a couple million, clvboost.com would be the most relevant place to go.
[51:42] OK, great. And uh, if people want to get in touch with you, what's the best way for them to do that?
51:47 Feel free to just hit me up. I mean it's [email protected], so if people want to email me that's always cool. And then otherwise just @danfaggella on twitter, I have a lot of twitter and linkedin conversations going on at any given time about marketing, business growth, etcetera, and always fun to meet other entrepreneurs.
[52:04] Awesome. Dan thank you. It's been a pleasure and I wish you all the best man. Cool. Thanks Omer. Cheers.
52:15 Thanks for listening. I hope you enjoyed the interview. You can get to the show notes for this episode by going to thesaaspodcast.com where you'll find a summary of this episode and a link to all the resources we discussed. If you enjoyed the episode, then head over to itunes and make sure you subscribe to the podcast and also consider leaving a rating and review. If you want to show your support for the show. If you're not already an itunes, the fastest way to get there is a go to thesaaspodcast.com and click the button. Thanks for listening.
[52:46] I'll take it. Yeah.
- “Scaling Up: How a Few Companies Make It…and Why the Rest Don't” by Verne Harnish