Growing and selling an indie business | Michael Lynch (TinyPilot)

for your next business like, is hardware out or you know, depends on what it is. Yeah, hardware is definitely out. I eventually got to the point where I felt really comfortable with it, but there were so many points where I was like, this wouldn't be a problem if it was all digital or if it was all software. So the blog post I wrote about selling TinyPilot, one of the hacker news comments was like, oh like, he actually made a bad choice because, had he just stayed at Google, he would have made more money.

And I'm like, well no, I'm not optimizing for most money. Like, it's more satisfying to me to make $200,000 a year and knowing that I'm capturing the full value of that rather than maybe I'm working for Google and I'm making $400,000 a year. But I feel like I'm actually generating $2 million in value. And so I'm like, oh that sucks that I'm not really getting the full value of what I'm doing and I'm giving so much of my work to somebody else because they're in this position of employer.

For someone who might be starting on this journey, you know what, I like electronics, I want to put a board together and maybe even sell it to a consumer. But what do you ask them to think more about how to discourage the firm doing it? Well, the advice cannot be done. Do it. I'll request that. If I can't say don't do it, I mean, I don't think that it is a blanket, don't do it.

But I think it is really important to recognize that there are a lot of existential risks in hardware because a lot of times with TinyPilot, I would have to invest pretty much all of the cash we had on hand into the next batch of something. Welcome to the software and misadventures podcast. We are your hosts, Ronnick and Guan. As engineers, we are interested in not just the technologies but the people and the stories behind them.

So on this show, we try to scratch our own edge by sitting down with engineers, founders and investors to chat about their path, lessons they have learned, and of course the misadventures along the way. Welcome back to the show, Michael. Super excited to catch up. Thank you for having me. I'm really excited to be back. This was so much fun last time. Nice. Nice. Okay. So back in 2018, six years ago, you quit Google to work for yourself. We're in the hacking before it was cool.

So the first two years, you were trying a bunch of different projects and a negative profit. But then in year three, you started working on TinyPilot, which over the past years, you grew to a team of seven people with a million dollars in annual revenue. And in April, you actually saw the company for 600 K, 5 congrats. Thank you. I've been following your journey for years. So like, you know, I'm really I'm super happy for you.

So I'm sure you've done a lot of like introspection in like the last month or two. Yeah. Did you learn anything new about yourself, like having gone through this process now? Oh, that's a good question. I don't know. This isn't something I learned about me, but like one of the things that I learned just about running a business and the process of handing it over, it's like a living thing.

Like every job I've had before, I could quit if I wanted to. Like when I worked at Google or Microsoft, I was like, I'm tired of this and so I'm just going to leave with TinyPilot. There was this feeling that I had built up something that I thought was worth $600,000 or something in that range. And that was the valuation I heard from brokers.

And it was only worth that if I could complete the transaction. Like if I, there's no like I'm tired of this like quit because then it's worth zero. And so it really did affect the way that I think about businesses and the way that I think about what the transition will be like if I do it in the future. Like I think TinyPilot ended up being more complicated than I realized it would be at the beginning. Like at the beginning, I thought it was going to be mostly like a software business.

I thought I would sell people software and the hardware would be secondary and then it turned out to be much more focused on the hardware. And so just seeing like how much that I could build a business for myself that was actually pretty complex to sell to somebody else and like what that position feels like it did affect my planning for future businesses of like.

Okay, like if there is complexity, there's not just like the overhead of running a business that's complex. There's also it's going to be that much harder to exit if I get to the point of wanting to exit. Is that part of complexity like also just having like people now involved like on the team and having to figure out like what that transition will like for them like that also makes things more complicated.

The people were actually the easiest part, I think. The team because the way that TinyPilot had been set up was pretty. All the teams were pretty self directed so it was it was three separate teams of two people. There were two developers, two support engineers and two customer service staff.

And so their day to day they they had workflows that they knew how to run themselves. And so transitioning them to a new owner that that part was pretty easy. I think it was just the complexity was all the moving pieces that need to fit together between like the vendors and the like our distributor and the people that help design the hardware.

And there's with the hardware business is just so many like little moving pieces and making sure you transition them to the new owner and everything's going to be in a good place. I think that was the hardest part. I see actually for people that haven't that didn't listen to the first episode could you give it like a quick recap in terms of like the different pieces because I do read about right it is quite complex.

Like vendors you need to work with like yeah so yeah just as a bit of background TinyPilot the product was a device that you plug into a computer and it lets you control the computer remotely. And so we had for a long time we were doing 3D printing of the cases and assembling everything in our office in Massachusetts.

In 2023 we switched to contract manufacturer so they ended up handling the whole end to end of manufacturing circuit boards and manufacturing cases and assembling everything and flash in the software. So there was that piece there was also the 3PL which is a third party logistics vendor there the warehouse that when orders come in they pack up the order ship it out.

We had a distributor in Europe and so we had to make sure that they also continued to have access to the hardware from the contract manufacturer and from the new owner. Those were the I think there's a major vendors that we worked with. Like so you said like this kind of changed your thinking around like what's the criteria for the next business to kind of reduce the complexity like yeah like have you refined like the sort of what are the attributes you're looking for as you build.

Yeah I would like it to be something where I could probably run it with a team that's me and maybe one or two other people I think once you get beyond that there's a lot of work that goes into management and I like management I like working with people especially I'm just a little bit of a mentor people and like when developers on the team I could help them grow that was really satisfying and like help them with their career goals.

But I also I love coding like I I really want to write code myself and so when I was managing six people and and managing relationships with all the vendors there's really very little time to actually write code. And so I just like see the developer is writing code and be like I want to do that too. so that there's bandwidth so that I can go to swap. I can write code myself and take more of a hands-on role on the technical development. So we got a chance to talk with Brian Kentrull. Kentrull?

Kentrull. Yeah, from Oxide. Right, right. So then we're talking about like, oh yeah, it's much harder to build a company that's both hardware and software, but it is a much more enduring business. I feel like TinyPilot is in many ways, right? It's both software and also hardware. Yeah, yeah. But at the same time, it's, I feel like it's a pain you ask to, like, build a hardware product. So like, I guess for your next business, like, is hardware out or, you know, depends on, I guess, what it is.

Yeah, hardware is definitely out. I think I eventually got to the point where I felt really comfortable with it, but there were so many points where I was like, this wouldn't be a problem if it was all digital, or if it was all software. And a lot of the things, like, aren't, it's kind of irrational on my point, on my end, but I would get complaints from customers that were like, hey, like, USPS says this was delivered, but it never was. And I'm like, yeah, but I can't do anything about that.

Like, we would work with them. Yeah, that's a problem. But I was always thinking like, oh, man, like, this is an assass product. There's no way they can be like, hey, like, Comcast said it delivered these bytes to me, but they didn't really arrive. I'd be like, well, we can check.

Yeah. So it's just, it wasn't, it wasn't even that frequent that customers had issues with shipping, but whenever it happened, and like, also I wasn't really even in the critical path for that, like the customer service team knew how to take care of those issues. But sometimes when it would have to escalate to me, I found it really demoralizing. I think it's not rational how much it bothered me.

But there were people that would be upset in ways that I found, like, especially Amazon customers, because we would sell through Amazon, even though we were fulfilling ourselves. And a lot of customers don't really see the distinction between buying a product from Amazon and fulfilled by Amazon and buying a product that's a third-party product fulfilled by the merchant. And so they would email us and say things like, tell the driver to put it on the table next to my front door.

And I was like, what? Like, even when you order from Amazon for real, you don't get that level of control. Like, what are you talking about? And we would, you know, we would try to work with them and try to keep them happy. But a lot of these things that you deal with in physical products are things that were kind of my least favorite parts of the business. And so in the future, I think I'm going to try to do something that's purely digital or assessor something.

But it is unfortunate, because I feel like I learned so many hard lessons about shipping a hardware product or at least shipping a physical product. And I don't know what to do with all that knowledge now. Like, I can't really. There's not that many people that are making custom hardware at my scale, because it's really hard to bootstrap that. But I think I got pretty lucky in that I was able to kind of catch enough lucky breaks that I was able to get to a point of scale.

But it is really hard to make custom hardware. In this case, like, from a scale perspective, what did that scale look like? There were a few different points where we could make a shift. So in the very beginning, it was I was just selling a kit of off-the-shelf parts. And then the next step after that was we wanted to make it so that the customer could, instead of relying on power from the computer, which wasn't actually producing enough power to meet the rep. It was built on Raspberry Pi.

And so Raspberry Pi actually has a pretty high voltage requirement. I think it requires five volts, three amps. And like, the USB port on your computer, even USB 3, I think it's only 1.2 amps, something pretty low. And so the Raspberry Pi can get by on it, but I didn't want to sell a product based on that. Because I knew if there started to be hardware issues in the future, I would always wonder, oh, it's because I'm telling people to run it on lower power.

And so I worked with, I found these electrical engineers like kind of through chance, like it was another founder that had been in this peer support group with. And he was like, oh, I know these electrical engineers that might be able to help you. So they made this circuit board for me that was like this tiny little thing, like maybe the size of a matchbook. And we worked with a 3D printing shop to make a little 3D printed case for that. And so that was like a very cheap thing to make.

But as we went on, it was like, OK, well, what if we want to put that little circuit board in the device itself? So it's not like a Raspberry Pi and then a separate thing. And then it would kind of iterate on like that where it was like, OK, well, now we want to support audio. And that makes it a little bit more complicated, like capturing audio as well.

And then when we got to the point of switching to a contract manufacturer, the contract manufacturer isn't going to be like, oh, sure, all manufacturer like 50 a month for you. They need to be on the scale of thousands. And so we couldn't have done that in the beginning. And so we really needed to do a lot of the, like, do it yourself. And that was the other thing. Originally, it was my then girlfriend now wife, we were at home. And she was the first employee.

And she would build the devices in our house. And then we got to the point of like, OK, well, we want to be able to take a vacation. And so we need other people that can keep working if we're on vacation. So getting to the point where we can afford an office and can afford to hire employees that will staff the office. And then it kind of kept going like that.

And we would make enough revenue to get to the next level of, OK, now we can automate this a little bit more, like outsource a little bit more of this work to get to more scale. And in this specific, go ahead, Ron. Sorry, I just do my little joke here. When you got your then girlfriend to be the employee, you changed the label to family business. Sorry. I stopped. I'll shut up. I'll shut up. Please. Ron, I'm like, please. Yeah, we didn't. We didn't figure it into the branding.

Congratulations, by the way. Go on. Where are you, my honours? Sorry, joke to the side. In this specific case, like you mentioned, you would probably not do hardware again because of all these challenges, but you have so many lessons you have learned through this. There might be some, let's just say, crazy people out there who want to learn from their own mistakes and would be wanting to do hardware. And in this specific case, if I got to write, you're selling direct to consumers.

It's not like you're selling to somewhere in your third party, like people, individual people, that actually are doing these devices. Right. Yeah. We had one distributor that would order in bulk, but that was for Europe. And then in the US, we would sell. In the US and everywhere else, we would sell directly to the consumers. So I don't know of many people who are trying to build physical products like this, especially in the embedded system space. And they are selling it to consumers.

So I want to talk about some of the scale aspects there, too. But in this case, for someone who might be starting on this journey, it's like, you know what? I like electronics. I want to put a board together and maybe even sell it to a consumer who might want to take it to the scale. It took it to. What are some of the lessons that they could learn from, or in other words, what would you ask them to think more about or some lessons that you could share with them?

How to discourage the from doing it? Well, the advice can hardly be done. I'll repist that. I think, I mean, if I can't say don't do it, I think, I mean, I don't think that it is a blanket, don't do it. But I think it is really important to recognize that there are a lot of existential risks in hardware. Because a lot of times with tiny pilot, I would have to invest pretty much all of the cash we had on hand into the next batch of something.

So it would be like, oh, we want to make this improvement for V2. But in order to make a V2, we have to pay the electrical engineers $60,000 in their hourly time. And then we need to buy all these supplies. For hardware, you can't just say, hey, I want to make 200 of these. You really have to buy components that you're going to make a year or three years worth of it. And so it gets very risky.

Fortunately, a lot of components that you have to buy are on the order of cents per unit or a few cents per device. But some of them would be pretty expensive, like $1.50, or $1.50 per unit. And so if you're buying like 3,000 of those and you get it wrong, that's a big risk. And there's just a lot of things that I didn't anticipate at the beginning that could sink the business. So things like we did run into this. We tried switching to a new circuit board manufacturer.

Because in the beginning, we were just we were doing the assembly ourselves, but we were finding PCB manufacturers to get the circuit boards printed and then assemble the PCBs and do all the soldering and stuff. But we had one where we were trying to switch from China to the US. And I was like, well, there's a lot of risks with China just geopolitical and shipping and communication barriers. Let's try finding a shop in the US where the turn around time could be much lower.

And then they ended up ruining an entire batch over product. And there's not really much what I can do. They gave us a refund, but we lose all the materials that we sent to them. And we were like, OK, we'll try it again. And then the same thing happened. They ended up having manufacturing defect. And so we couldn't use any of the results. Oh, that's fine. And so fortunately, we had tested them on a pretty small scale, just in case something like that happened.

But there were times where I didn't really have the flexibility to do that where we were like betting big on like, OK, this next batch has to work. Or else we're going to lose $50,000. So we're going to lose all the money that we need to make it to the year. And then there's things like just get a lot of the shops that do assembly or manufacturing PCBs. They're overseas to get to an affordable rate. Like you're working with China or Vietnam or the Philippines.

And so there's risks of something getting lost or damaged when they ship. There's risks of customs taking it or charging you like a surprising fee. We had one thing. I don't even remember what this component was, we had to order $14,000 as component from China. And to prototype, we had to ship it. We had to get it shipped to the US. And we got it. And the customs was like $3,000 on it. I was like, oh, man. That's not what I was expecting.

And then we ended up having to ship it back to China after the prototypes were done. And so I think we had to pay customs again. And it's just, yeah. So my biggest piece of advice is just recognizing how much risk there is in doing iterations and being forced to carry inventory because if you're in a physical product, like you have to, a lot of your money is going to be tied up in inventory and that puts a strain on cash if you're just starting out.

So my biggest advice would be just to be aware of the risks and make sure you're not risking more than you mean to. Speaking of inventory, I think one of the blog posts that I'll link it in the show. That's right. Was I started with the most terrifying 10 minutes of 2023? Oh, yeah. Could you go through that? Yeah. So it was like a time in tiny pot where things were going pretty smoothly. And I think it was just like a Saturday morning and I'm in my pajamas.

And then somebody knocks on my door, which is really unusual. And so I go to my door and it's this guy I've never seen before. He's like a middle aged guy. And he's like, are you the tiny pilot guy? And I was like, what is this? My first thought was like, is this a disgruntled customer? I'm strapped down my home address. And like what's happening? That's how I'm like, yeah. And he's like, there's a flood of the office. You got to get down there.

And I was like, oh, God. And he's like, yeah, I'm the handyman for the office. And I was like, oh, gosh. And I live actually very close to the tiny pilot office. And so I just drove down there and the entire drive. I'm like, oh, God, this is before we switched to the contract manufacturer. So all over inventory was in that office. And we had renters insurance. But I got it when I first moved in. So I think we had $20,000 of coverage. And we probably had maybe $40,000 with the inventory.

But it also meant if that was destroyed, we don't just lose $40,000. We lose that plus being unable to sell anything for six months. Right. So I was like, oh, God, what's going to happen if the office is just totally flooded? And I get there. And so lucky, it turned out it was the office right next to ours that flooded. And so I opened the door to our office and it was completely dry. The water came within an inch of our doorway and just didn't go in at all. And so I was so relieved.

But I was like, wow, you really need to. I really can't bet everything on this office. And that was a huge motivation. And we need to ship operations to a third party logistics vendor. So we're not the single point of failure. I mean, we're still at risk of that if the 3PL floods are catches on fire. But it's more like somebody else's problem to fix. That was the other problem was after it flooded. They're like, well, it flooded because of sprinkler exploded.

And so now due to fire safety, you can't go in the building. So I'm like, OK, well, it's pretty hard for us to ship anything if we can't go into the office. Unfortunately, they were able to get it wrapped up in a week. But it was also the same week I was about to take my longest vacation from tiny pilot. I was going to Europe for a wedding. So it was going to be gone for two weeks. And I was like, oh, man, what do I do if they have to? Like, the other employees, I was the IT guy.

Nobody else knew how to set up the network and all the computers and the printer and stuff. And they can't print. They can't ship. And so fortunately, we ended up not having to move offices. And it was fine. But it was definitely like, OK, this is one of the risks I want to minimize. This is one of the things I want to try to make somebody else's problem if something like this comes up in the future. So that is a close call.

In this case, how do you global are deciding the pricing, for example, put a unit? We talked about this last time where I was just like, I don't know. I said that every time I raised the price, I just thought that's too high. And then I would raise the price to that level. And then people would still buy. And I would go, OK, I guess it wasn't too high.

But really, in the beginning, it was like, OK, I want to make $100 on each unit just because I think that's going to be what it would be worth it to me to pack a box. And I thought I had to bring it to the post office, turns out you don't. But then over time, it was just like, let's increase the price and see how people react. And I eventually got to a point where I did notice sales start to slow down with higher prices.

But that's also really hard to tell, because we were generally selling between like $100 and $150 units per month. And so there's a lot of noise to that. Like if you raise the price and then the quantity goes down, it could be because the price could be something else. And for complicated reasons, our tech stack for the Shopify store was not in a position to do real A, B testing, or we could in parallel test different prices.

So it was mainly just like, I would change the price and then let it run for a week or two. And just kind of like, a lot of it was gut feeling. Sometimes I would do analysis on my blog and say, OK, we sold a little bit more at this price. And then I realized ultimately the thing that I was, I wasn't trying to optimize for most sales or most revenue, but rather most profit.

And that changed the way I thought about it too, because I realized that I could maximize revenue, but then it's also more customer to support. I think for a lot of SaaS businesses, like profitability and revenue are so close that they could just look at revenue and not really care. But for TinyPilot, if we sold a device for, I think, it was 400 for the lower end and 500 for the higher end. But the cost to us to make those was usually between $130 and $150 per unit.

And so it's a pretty big chunk going just to the hardware. And then there's also the cost of supporting those customers. And so you estimate that, OK, over the course of this person's use of TinyPilot, maybe we're going to spend $30 on average on supporting them. And so when I started thinking about pricing, I was like, OK, let's just maximize revenue, because of course, everybody wants highest revenue.

And then I was like, well, if I could make the same profit per month and have fewer customers, that's actually better for me because long term, those customers are going to be simpler to support. So the pricing was mainly like experimenting and trying to look at the performance after and decide what was work best. So those are the two philosophies I've also heard where you have a slightly lower price that gives you a lot more sales. And the other one is you have a slightly higher price.

You have a slightly lower sales. But if you do the math, sometimes you are better off by just increasing the price. And like you said, the overhead of everything else you have to deal with goes down. And I've heard this from also many people who specifically cater to just what they would call as premium customers. With like, I charge a premium and I only deal with them and I deal with like percentage of customers. My peers would deal with and that's a choice.

Considering the type of business, obviously, this may or may not work. In general, where do you see this kind of strategy working better? The strategy of going for lower sales. Lower sales and higher profit. Higher profit. Yeah. I don't know. I mean, my experience is pretty limited to just the mainly tiny pilot is the only business I've run like profitably. So for that, I think it was a good match. I think there is value in having a lot of customers to just sort of win mind share.

And so that's why we would, tiny pilot was, it was open source. It was based on an open core model. So when I initially made the prototype that was off the shelf parts, it was, I published all the source and so people could just make it themselves without paying me anything. And we kept that throughout. And we always made sure that people could build it themselves for free.

And so my thinking there was that if somebody used like a basic version in their home lab setup, they could say, hey, I like this. And then when maybe they have a job in IT and they go to their team and they say, hey, I've used the open source version of this. Like I think it would be cool to get a paid version. But in terms of, I think for a lot of indie businesses, like the small customers, higher profit probably, is like for almost everybody is probably going to be the best match.

Because if you're small and your bootstrap, like you have very limited resources. And so supporting, if it's a choice between having 1x or 10x, the customer is even if the profit is slightly higher at 10x, just the amount of time you can spend per day on things that you're interested in is so much higher if you're just supporting a smaller number of customers.

And one of the things that I've heard a lot and also found true with TinyPilot is that the more price sensitive customers tend to also be the hardest to support. And you'd expect it to be the opposite. We would have Fortune 500 customers that would be like, hey, we want 50 devices. And I would be like, oh no, they're going to have so many questions for us and expect so much because they gave us so much money. And we just never hear from them again.

We would maybe hear from them a year later and they want 25 more. And I'm like, how's it working for you? And they're like, it's great. We just, we ran into some issues, but we fixed them. And I'm like, OK, great. That's great. And then, yeah, then you get customers that are like, hey, can you give me a discount? I can't afford this. And I'm like, OK, fine. And then they have a million feature requests. They want like white glove service. So yeah, catering to the premium customer is, I think.

It's not even like, if you can sell 10 times more, but 90% of them are going to be the price sensitive customers. It's not even like 10 times the work. It's like 100 times the work. So yeah, I think for indie businesses, like the way to go is small, like higher end customers. This is something that Tim Fettis talked. I don't know if he know Tim Fettis, but yeah, he read that. Yeah. So the poor are work week.

Yeah. So I think this is one of the things he talked about quite a bit in that book as well as when everybody shares his journey. And he shared something similar, like you said, the more price sensitive customers actually had the most amount, like they resulted in a least amount of revenue slash profit plus the most amount of work.

Yeah. So you mentioned that at this time you had a team of six people, how did you go about assembling them in terms of like, so true dimensions that I'm thinking of right now. One is like, one, how do you find them to how do you figure out what to pay them? Yeah, it was, I think the developers were the first hire. I think the developers were the first hire because I realized I was spending so much time on customer support that things weren't really moving forward in the software.

And there was a blogger that I liked. And I think we'd just email back and forth just kind of been like, hey, like you're writing about a similar thing. We kind of covered similar topics. So I just reached out. And then I noticed on his blog that he said he was taking freelance clients. And I was like, hey, like maybe you want to work with me on Tiny Pilot. And so we got sort of working together that way. And then I think after that, I hired people. That was in early 2021 we got the office.

And so we wanted people that could staff the office and make sure that they were building new devices every day and fulfilling orders. And so for that, it was just, I put ads on, I think, Facebook and Craigslist. Like we have a local Facebook group. And so I just wrote up, I think just a little Google Doc saying what the job would be. And I think what the hourly rate I offered at the time was like $16 an hour.

And for that, I was surprised at how quickly I found good people, the first two people that I interviewed were the first two hires. And they continued with the company until I sold it. So they really worked out. And then I brought in another developer a few months after that that was recommended by a friend. And then the support in years was, I think, the piece that took me the longest to figure out.

Because I realized that there was, I actually don't remember the order now, that the people that I hired to build devices, I eventually asked them to transition into doing customer service kind of work as well. And then especially once we outsourced to the third party logistic warehouse and to a contract manufacturer, there was no more building or shipping devices to be done. So their job became fully customer service.

But there was always a gap between what customer service could do and the things that users would ask for that were technical problems. Because the people that were doing customer service, they don't have a background in software or Linux. And so sometimes people would say, hey, I'm seeing this error on the command line. And then they would have to escalate that to me. And so I was like, OK, there's a gap here.

We need to hire somebody who's not exactly customer service, but not exactly a developer. And so that's when I created the, I mean, I didn't invent this role, but support engineering. And so I brought in people for support engineering. Looking back though, I think I kind of did it backwards. I think I should have probably outsourced. Like when I hired a developer, I was like, oh, I'm spending so much time on customer service. Like I need a developer that can help me with the code.

But why would you outsource the most expensive thing? It would have made a lot more sense to hire somebody to help me with the customer service. But that was a thing I learned a lot through the course of running the company is I kept on thinking that there were things that only I could do, or that would be hard to teach somebody else to do, and then realizing it's not really that hard to do.

And so I remember one example was a customer was like, oh, can you send us a custom invoice for with our names on it and with these fields and stuff. And I was like, okay, customer service isn't going to know how to do that. And so I looked up templates and did it, and took me an hour, and then I finished. And I was like, wait, customer service, I don't have special expertise at, I don't have invoice training. Customer service, they're smart.

They could have figured out the same thing that I did. And they think there were a lot of things like that where I just assumed that only I could do it, or I felt like I was very afraid of asking people to do anything that was outside of their strict role. Like I never wanted to make people feel like I was asking them to do the unpleasant work.

But I think I took that to the extreme and just always tried to make sure they only did like what was strictly their job, and then the person that ended up doing, there's like so many gaps. Like if you're the founder, there's so many things that don't fall specifically in customer service or development and stuff. And I just always felt like, oh, it's like it would be unfair to ask somebody to do anything else. And when I talk to people, they were like, no, we're fine doing this.

And also we want to do stuff like that. We want to do things that give us more insight into the business. And like advance our career more. Like it's not great for our career if we only do the same things, if we only do exactly what we're hired for, like we want to get more of this perspective in different parts of the business. That seems like a tricky thing, right?

Of if you're a technical solo founder and the decision of like, okay, do you outsource stuff that you know well, so like the software side or say like not support, but like say the business side, like making it like doing sales, would you have done it differently or would you have stuck with it? If I had to do it again, I think I would have outsourced customer service before I outsource development. And like outsourcing customer service doesn't mean I take myself out of it entirely.

Like for almost all of TinyPot, I was still like overseeing customer service and I was reading every customer service message anyway and I would jump in if I saw that the answer, like maybe if I interpreted the question different than the customer service agent that was answering it. So yeah, like I think there is risk of being too disconnected from customer service if you totally outsource it and just don't pay attention.

But I think there's like a very easy middle ground there of outsourcing it. But I think the reason that I started with outsourcing developers was because I am a developer and so I felt so much more comfortable training somebody in that, yeah, like I know what the role you're supposed to look like. Whereas I think things that were hardest for me to hire for were things where like I didn't know what a good job of it looked like.

So I think we talked about like my fiasco trying to hire like a design agency, spending $46,000 on like what should not have been a $46,000 job.

But for developers, like I know developers, I've hired developers in the past, like I really get that part of it, but it felt more, it felt harder for me to judge like customer service because I've never hired for that before and like it's harder for me to know the difference between like somebody who's not a good fit or like maybe I've trained them wrong or maybe this is just like part of the learning curve.

Like with a developer, it's just like I've worked with so many developers that I kind of know what somebody who's a good fit should look like early on. And all these folks that you're working with are they contractors or you have like four time employs? Everybody was part time, so everybody worked 10 to 20 hours per week and I mean I didn't really distinguish between like contractor and employee, it was really just for tax reasons that certain people had to be classified one way or another.

So the people that worked in the office, they were classified as employees because they legally have to be because just if you look up the definition of like what's an employee like if somebody tells you where you have to be, then you're an employee.

But yeah, like I didn't really, at the beginning I was kind of thinking about it, well contractors have, they're less tied to the business, but everybody stayed with the business for so long, it wasn't like they were just, the contractors were really different than the employees. But yeah, I definitely would try to do contractors, but there's so much red tape to hiring employees.

Like it's very unfortunate that the way it works in the US is so stacked against small businesses that like there's so much, there's so much paperwork, there's so much bureaucracy in just like hiring employees and paying them properly. And like even if you're using one of those like HR as a service thing, is it still such a pain. So I would try to get everybody as a contractor role, but like I didn't see them as like, oh you're not really like invested, it's like they were all team members.

And in this case like when you're hiring a contractor or just let's say a full time employee, work resources can folks look out for in terms of the hardware, draft the contract in some cases and in case of full time employees like any let's say third party companies that they can go through to get all the people to work on, because I'm assuming as a founder like you would you wouldn't know everything that you would have to do if you're hiring someone as an employee.

Yeah, I don't know, I don't know if I actually did it right. I found contracts online and just use that. Like the advice I've heard is that, you know, like you don't really want contracts to get to the point where you're settling things in court. Like once you get to court, like things are already pretty bad. And so like the way that I tried to draft contracts was like it's clear to both of us. And if we ever did go to court, it would be clear to a judge what the intent was.

And I'm sure if I like ran the contracts through a lawyer, they'd probably tell me like, oh you're not covering this case or something like that. But a lot of the contracts were also people that were outside the US. So the chances of it like going to some kind of international court was pretty low. Like it was mainly like the important things for me in the contract were making sure that the expectations from both sides are clear in the contract.

And we're not going to run into a situation where like there are surprises of somebody's not getting paid for something they thought they were going to be paid for. Or you know, that it and the work was pretty flexible. Like they worked, they chose their own hours and they had the option of like sometimes working a little bit few hours or more. And so yeah, it was the main thing that was important in the contract for most people. It was just like this is the hourly rate.

And then I had documents internally of just like here's what I expect from you. But I probably don't have good advice for people on like how to draft an airtight contract. So in this case, how do you track hours? Because in this case, if you're paying hourly and they are choosing their own hours, is it more like you expect something to take a amount of time and they say, yes or no? Is it like software estimation? Or is it something else? Yeah, sometimes. OK. It was hard.

So we tried a few different tools. I'm not going to say them because I don't like any of the tools that we used. But it would basically just be tools that would let them say, like this is how I spent an hour doing this. I spent two hours doing this. For developers, I was much more comfortable with it because I'd done things like that before. For things like the support engineers, it was a little bit harder because I didn't want them to spend so much time just on bookkeeping.

Like if they're like, oh, I spent five minutes answering this support ticket. And then I spent like eight minutes answering this support ticket. Like that to me seems very tedious. And I tried to make it so that they could kind of like bundle things and report in a sensible way. But yeah, it was mainly just kind of like looking at how they were spending their hours and thinking about whether that matched my expectations.

If they worked 15 hours a week and they said that they were spending like 10 of those hours on support tickets. And then I looked and they had answered three questions. Then I would be like, hey, let's talk about what's going on. I think you're depending too many hours into these tickets. And I think we did have that with not so much with support engineers, but it would be more with developers where like we would have somebody, there were developers that didn't work out.

I would do contract to hire. So most of the people out hire, like it would be clear after like a week or two. Like, hey, this isn't working out. But there were a few where like it wasn't obvious to me until a few weeks later. And so I would see like in their weekly time sheets, it would be like they spent 17 hours fixing a bug that I would expect them to take like an hour and hour and a half on. And then like, hey, like this is like way off.

Like I think there's just like, unless there's like something I'm misunderstanding about the complexity here, like I think this is just like a skill mismatch for what the role requires. But yeah, it was mostly like just kind of eyeballing it and seeing like, OK, does that seem sensible? And like sometimes it would be, you know, I always like gay people to benefit the doubt. I never was like, and there are a lot of like time tools that are like, oh, catch your employees like lying to you.

They're going to try to trick you. And I'm like, that's so stupid. They're adults, like they're going to, if they're trying to like trick me, we have bigger problems than time sheets. But I think there were also times where I'd be like, hey, I filed this bug and like you end up spending like 15 hours on it. And like those are legitimate hours. Like it probably would have taken me a similar amount of time. But it's actually like that bug actually isn't worth 15 hours to me.

And so that was a hard thing to figure out, like how to communicate where like certain bugs. I'm like, yeah, it's hard to say like, where should we give up? Where should, like where is it worth investing? When should you check back in? Because I think you could say like, check in every three hours or something to see if you keep going. But that interrupts slow as well. So it's hard.

So one thing which I'm thinking about is just in terms of high level math, there are a few dimensions that are involved in this case. You have some idea about how many orders you're getting per month. You have some idea of how much it costs you to build something. And you would use some sort of projection to say, let's keep an amount of inventory. And then you have some fixed costs, which is you have six people working some full time, some part time.

But there is some amount of advertising costs per month. You could break it down to. And then you have an idea of how much profit you need. How much profit you want to make per device? Yeah. So when it came to just projecting the price, projecting how much profit you are anticipating, how much at what point you want to order next, et cetera. Can you walk us through what that high level math looks like? Oh, I was not doing high level math.

The meme that comes to mind is like the one with the equations. It was the one with the equations. Yeah, that's a questionable question. Yeah, I mean, my mental model was like, I was thinking about it, but it was a very simple heuristic. Because my mental model was like, OK, let's say I'm spending $20,000 or $30,000 per month. That might be too high. I forget what the numbers were. But let's say $20,000 per month was staff and the office and the things that are going to be recurring every month.

And then I would say, OK, just to keep a float, I have to sell this many devices. And so that number was, let's say, 100. And then it's OK. So after 100, then I'm just making whatever the profit is on the device. I take the price I sold it at minus the cost of the hardware minus what I'm guessing the cost of supporting those customers are in perpetuity or until they practically keep using it. And then that's going to be my profit for the month. But that was a big problem.

I always had a really difficult time of just doing the math and figuring out what is my profitability this month. Because so much of my money was being reinvested into the future. So development, you could get rid of all the developers. And people wouldn't really notice for six months. And then after that point, it kind of catches up to you. Maybe even a year, people noticed, hey, you're not making any changes to the product. I'm not going to have to.

But then other things, yeah, there's a lot of things like investing in next iteration of the hardware. When we would iterate on the hardware, we're spending six months or a year before we get to realize the benefits of all that investment and all that work. And so I would have a hard time thinking, can we afford? I'm putting in 150,000 dollars into hardware engineering for this next round. And then how much more cost is there going to be as we go through the manufacturing process and stuff?

So yeah, I had a hard time of figuring out in the short term, how profitable am I? And even when I would look at it at the annual level, there's still a lot of future investment that's included in the annual numbers. But yeah, I would be happy if we would be cashflow positive, even though it's not the truest picture of the health of the business. And so manufacturing is something that you mentioned here.

Whenever you change, let's say, the hardware you're working with or the design aspects, do you have to go back and negotiate again with the manufacturer on how to build this or the cost of building it? So by the time we switched to the contract manufacturer, we had finalized the design. So we didn't really have to change much. I think if we changed it, yeah, they would probably give us a new quote and say, yeah, because they have to source a bunch of new components.

But yeah, I think that's a thing that I didn't realize until pretty late. Or maybe I couldn't have done much about it anyway. But there's design choices you can make that lower the manufacturing cost. So we ended up having a lot of different circuit boards in the device and we could have reduced complexity of building it a lot more by consolidating everything into one board and simplifying everything. But there's a big upfront cost of that of doing all the design work. Going to yearning to.

Well, since any other piece of advice for folks who might be working with contract manufacturers or looking for them. I was going to say I'm very impressed by a lot of questions. It's like, sounds like he's really going to build up his next hardware start. Oh, wow. I know. I agree. I know nothing about hardware. And on this podcast, we have spoken with the people who do a lot of hardware. And almost every single one of them is like, don't do it.

Yeah. But I think, as you mentioned earlier, you've built up a lot of this knowledge over the last few years. And I'm just trying to surface those and see other folks can leverage that. Yeah. So advice for other people working in hardware, I would say specifically working with the contract manufacturer. I think the really important thing is having somebody that you trust.

Because I think the hard part is when you're working with contract manufacturers overseas, you can go on Ali Baba and bid out contracts to a lot of manufacturers there. But I don't know. At least for me, I don't know the difference between these companies. I can't distinguish between a reputable skilled company and what's not, because that's just not my domain. And so I really relied on we worked with electrical engineering partners in the US that we knew.

And we had built up a trusting relationship and we worked with them to find, OK, who's going to be a trustworthy vendor? And so they can tell us like, oh, this vendor has this reputation. We've done a lot of work with them in the past. So I think if you are not somebody that has relationships with contract manufacturers or PCB manufacturers, you really do need somebody that can guide you. So there's a bootstrapping trust problem of like, if you don't know what good looks like, how do you know?

What? How do you find a advisor that how do you know what a good advisor looks like? So I think for us, it was like working with an advisor in the US helps a lot just because within the US, it's much easier to judge like, well, this, they have like a terrible website or like they have, it's just like a one person shop that is like in the back of a van or something versus like, OK, they have like 50 employees and they work in a real office.

So also, I think the low trust and high trust society difference. And most of North America and Europe, I would say, is more of a higher trust society. Whereas as you start going east like in the Asia, these Asians don't hate on me. I'm an Asian whistle. But trust is a problem. And it's pretty apparent.

On the topic of delegation, I'm quite interested because right like reading through your retrospectives, I feel like that has been like kind of a reoccurring scene, like as you've gone through this journey over time, you've learned like, hey, I can delegate this. I can delegate that. Yeah. I'm curious if you've developed like a framework of, you know, you could be the next business you're building, right, like the new skill sets, you're picking up.

Are there signs that you're looking at all for that when you're doing something, you're like, hey, maybe this is something I should consider like delegating? Yeah, I thought a lot about delegation because my perspective on it changed a lot. When I first started out, I felt like maybe this is like the Tim Veris influence of like, oh, just outsource everything I don't want to do.

And I realized that for indie business, that's actually really hard because one of the things that you really need in the early stages is agility and being able to react to things. So if you like start doing something and then you're like, okay, I'm gonna find a person and hire them to do it. Now you're so much slower because like you have to wait on them for results, you have to communicate with them about exactly how you want it done.

And so I really learned to like, before there's like, revenue or something that's like very promising about the business, my strategy now is to just do everything myself. Unless it's something where like a one-off task, like hiring somebody to make a logo or something. Right.

But in terms of delegating beyond that, I think it's important to delegate things like once you have a business that's working, so in the case of TinyPilot, it was like, I realize I was spending a lot of time on customer service. And so that was a thing that like, it doesn't need, there's like a lot of things about a business that required my particular set of skills, but like customer service is a thing I think I could find somebody else.

Like I didn't feel like I had some special advantage in customer service beyond just knowing the product pretty well. But that's a thing I can find somebody to do. And so for my next thing, I think I would look for the things where what's something that like, hey, I don't enjoy doing that much, be like, doesn't require any, like anything that I feel like I'm especially good at. And yeah, like what's taking a lot of my time during the day, like what's absorbing a lot of my bandwidth?

And those would be the highest priority things to outsource. So I would imagine like customer service would be, would for most businesses, customer service would be, one of the ones that I would outsource quickly, but I also have seen people like use customer service. There's like customer service shops where it's like customer service as a service, where you'll like hire a customer service company.

And my experience with them is always, like my experience with them as a customer is always really bad because I think you need in an indie business like a tight feedback loop between customer service and the product. And in those companies, I think the customer service team like knows they have no power to influence the product.

And so it always drives me crazy when I'm like, oh, I'm gonna support an indie business and like I use their product and then I contact customer support and it's like very clear they're using like some kind of outsource customer support that has no relationship, that like has no channel to them. And so if I report an issue, they just will like tell me how to work around it, but they won't like no, this is, I'm telling you something that's wrong with the product, like you should be fixing this.

So yeah, like with delegation, I think it's important to make sure you're not delegating so far, especially in the early days where you're still keeping like a tight feedback loop between anything you delegate and like you as the owner of the product vision. Nice. I hope this doesn't sound like a BuzzFee article, but like along those lines, what are some like the top misconceptions, I guess about like running an indie business? I think that the most prevalent misconception is how great it is.

And I think it's like, I think there are a lot of things about running an indie business that are great and I really like, but I think there's been this, like kind of similar to like the Instagram effect where there's like this heightened reality that people present online. And I mean people at meetups that wanna start an indie business or like have tried to start an indie business and their expectations are so high for what it's gonna be like.

Like they hear these stories about people like quitting their jobs and like six months later they're making $100,000 a month from some SaaS business. And they're like, that sounds great. Like I wanna do that.

And I met a guy at a meetup a couple of years ago and he was like, yeah, like I think I'm, like I've got some customers, but you know, like we've got a lot of users, they seem really enthusiastic, but like we're just not making money, so I think I'm just gonna like, I'm gonna give it up and like go back to working for a big company.

And like the way he was talking, he sounded so grizzled and like distraught that I was like, oh man, he seems like he's been at it for like five years or something, he's so burned out. And I was like, how long he been doing this and he was like three months. It was like three months. I was like, you have like active users after three months and like you're disappointed.

As I think there's like, I think there's like multiple levels to it, like I think people, a lot of people just aren't talking about their results. So I think if you're doing poorly, like you're just not gonna talk about it publicly and the people that are doing well, like they're gonna talk about it a lot.

And I think the channels where you find out at these about these stories, like they also, even if there's a distribution of people that are doing okay and really great, like the people that are doing really great are gonna get a lot more attention. And I think there's likely people also like exaggerating results, probably like some people like outright lying about results.

But I think I've seen people use like little tricks where they're like, oh my, like monthly revenue is like 100,000 and I'm like, you're saying like revenue like pre-fees that Stripe takes out or pre-fees that Gumroad takes out or Gumroad takes out, I like 10% or something. And so I think people are like, oh, I wanna, you know, have a high number so I'm just gonna say.

So I think that's the biggest misconception is like people go into it thinking like, this is gonna be a great time, like I'm gonna throw off the yolk I've been working under as like my big tech job and I'm gonna have such a fun time. And I think like I prefer being an indie founder, like a recruiter from Google reached out to me like three months ago and I was like, you can have your old job back with no interview and I was like, no, I'm zero attempted to do that.

But I think it, like you have to go into it expecting, it's gonna be hard and like it's gonna be hard in ways that are very different than working. I've only really worked in big tech and so like the challenges of being a solo founder for indie business are very different than the challenges of working in big tech. And it's kind of like higher highs, lower lows.

So it's just very different and like different people have dispositions that make them suited for one versus the other or sometimes you just like catch the being an indie business like you're much more vulnerable to luck and so like if you have a lower tolerance to just like going a year and not really seeing much progress like that's gonna probably bring you out in a way that you wouldn't if you were working in big tech and we're making consistent salary.

So in this specific market, it's really hard for people to find a job and three months ago you got this call from the little recruiter who's like, you can have your old job back and no interview required. Why say no? So last time you spoke, you mentioned, you shared your reasons for why you wanted to do indie business yourself. Have those reasons evolved since after you've done tiny pilot? I don't think so. I think probably just become more confident in the same reasons.

Like I really like having control over my day and getting to decide what I wanna work on and getting to decide what direction I wanna take the product and where I wanna, that was the thing before I started, before I quit my job at Google and I was just like listening to podcasts about indie founders. The thing I thought was so cool was just how they had complete control.

You're like, oh, I've got $20,000 in monthly revenue and so I can use that to hire a developer and make the product better or I can use that to invest in marketing and find more customers and get even more money and you can do really creative things with it. You can make a viral video or some kind of clever marketing and I find that part of it extremely fun.

You have so much more freedom to do that than if you're working in big tech where you're very limited to what the role you were hired for is. And so I think that to me is probably the biggest reason and I also really like even though, so the blog post I wrote about selling Tiny Pot at one of the hacker news comments was like, oh, he actually made a bad choice because had he just stayed at Google,

he would have made more money and I'm like, well, no, I'm not optimizing for most money and it's more satisfying to me to make $200,000 a year and knowing that I'm capturing the full value of that rather than maybe I'm working for Google and I'm making $400,000 a year

but I feel like I'm actually generating like $2 million in value and so I'm like, oh, that sucks that I'm not really getting the full value of what I'm doing and I'm giving so much of my work to somebody else because they're in this position of employer and I think that's another big thing

that I really like about being an indie founder is like knowing that there's not this distinction between like the value that you create and the value that you get to capture and like that was a really frustrating part of working for Google, not so much the value

but feeling like the gap in incentives, like a lot of times the thing that was right for me at Google was not the thing that was right for my team or for the company and I didn't like having to choose between like, do I do the right thing to help my teammates or do I do the right thing for my career

whereas if it's your business those things are aligned and you can also, I mean, Google has a hard problem of trying to align incentives among like $100,000 employees but if it's your company and it's a small company it's a lot easier to set things up so that everybody's incentives are aligned like you have a reason to help your teammates and like you can all grow together in a way where it's not like zero sum. That's really well put.

I haven't thought about value capture in essence but yeah, you're right, it's very demotivating, right? If you're only able to capture like 5% of the value that you create and like, okay, if I'm, you know, pulling all these off. I'm putting it all this time just to create that extra value but I can't capture it. Yeah, yeah, and Google actually had this program when I was there called Area 120 where it was like, it's a startup within Google.

We'll let you spend six months creating your own startup and we'll give you Google resources. And I was like, well, that's kind of cool but if it takes off then what happens? If you are outside Google and you create Dropbox like you're the founder of a billion dollar company and you're worth $170 million.

If you create this IP within Google and it takes off like Google owns all of that and like, maybe they'll be nice to you and give you bonuses or something but you're really at their mercy whereas if you're a founder and like it works, like that. The ball is completely in your court like you get to decide what to do with that.

Yeah, as someone that's sort of going through a similar process, I think you're like a role model to me but also to other people is because this like, combination of authenticity and being real about like the hard, like the harness of like the journey but at the same time it's like the operas, I'll put, okay, I can't speak English but I'll opt to Moussoum of like, right like, I said this in the last, in our last chat but just like how you're like, oh, after the first year, right?

It's like I didn't like, I made like negative money but like I'm having like the best, I do not regret it and this is like the best. Right. And yeah, so that has been like super, I think inspiring. Oh, well, I mean one thing I want to say about that is that like, I think I'm also guilty of presenting like a more heightened reality.

Like I don't try to exaggerate like, wow, everything's going great for me but the thing that's hard is like when seven people or six people were working with me and there would be times where like I'm having a really bad time, like it felt like a betrayal to the team to be saying like, oh, this has been really hard month for me, like I'm really not enjoying myself because they then have to work with me.

And so I struggled with like, I don't wanna like, mislead people and put on this persona of like, everything's going great, I'm super happy but I also don't wanna like, bum my team out and be like, ooh, like, sorry that like, you're so stressed by like this manufacturing defect or something.

And so I had a hard time like figuring out what the right level of candor is in the blog of like, I do wanna share as much as possible and like I wanna share how it really is but I also wanna do things that make people understand that I'm, there's limitations where I can't share like 100% and there's gonna be things that readers can't see that are going on. Nice, okay, doing a little bit of a pivot. So talking about the selling process.

So you wrote a very nice blog post, we'll link it on the selling process. There were funny cartoons for the due diligence which I think was the bang of the entire process. Yeah, it's really hard. So the part that stuck out to me, I'm sure Rana has other questions on this as well. Was it the question how you asked yourself? It's like, do I feel a loss of identity? I'm just gonna read it verbatim because I thought you produced super well.

So you said that I've heard other founders say that they struggle with the loss, sorry, I can't speak English or with the loss of identity after they saw their business. Others say it feels like they've given up on their baby. I didn't feel a change in identity or a sense of deep loss. I always run tiny pilot like a modest small business rather than a world changing startup. I'm proud of a tiny pilot and put a lot of care into the company but it was never a blood sweat and tears thing for me.

So on the work front, what is your identity and how did you build that over the last years? I still think of myself as a developer mainly. When I meet people and they ask me what I do, I say developer also because it's hard to explain. I'm an indie founder and I run, then I blog that some people read. But yeah, I mainly think of myself as a developer and after I sold the company, I plan to keep writing software and build a business out of that.

I think some of these hard questions are for bigger deals like people that sold their company for $60 million and they're like, oh, what do I do now? Who am I? How should I use this money? So for me, the sale was for $600,000 which is a significant amount of money but it's not like I'm gonna retire and go live on each someplace. And so the identity part of it felt like, yeah, I'm just gonna keep doing what I've been doing.

Like I'm gonna continue trying to do different software projects and build a business around them. Nice, nice. So I have some questions about the logistics of the setting process itself. I did in the post, by the way, that you mentioned TinyPilot only took 20% of your time where 90% of the stress. So 20% of the time, how? I mean, 20% of like 168 hours a week. So like 30 or 40 hours a week. I say, okay, that part makes sense.

But one thing that you mentioned earlier, and by the way, plus one to what Guang was saying, there's a lot of transparency in that post and there are, you've shared real numbers, which, yeah, thank you for doing that. It's not common or easy for anyone to do that. Yeah. So you mentioned broker, for example, in this case. Yeah, what does that look like, typically? Like, how do you find one that someone reached out to you?

Yeah, I did have broker's reach out and they didn't seem like they were gonna leave to a sale. And so I reached out to FI International, which I had heard things about them from SaaS founders. But I'd never heard about them selling a business that did a physical product, but they were kind of the only broker I knew of that worked with bootstrap founders.

And so I talked back and forth with one of the advisors at FI International and they were like, no, like you actually can't, I don't think I could find a buyer for you, unless you were selling 10 different products where no single product made up more than like 30% of your revenue. Oh wow. And he's like, you should look into USB cables and chargers and diversify your numbers that way. And I was like, USB cables, like, oh my God, I do that.

And so I was like, when he told me that, I think that was like late 2022. And I was freaked out because I was like, wait, am I just like, I'm like, this is the only brokerage I know that they were like my best hope. And I was like, is there really no path to selling tiny pilot? Because like the only broker I know that would cater to me is saying like, the only way I'd sell is if I become like the USB cable king. Like I don't know how this is gonna work.

And then fortunately I went to microconf, which is like a bootstrap founder conference. And it was my first year going and I met this brokerage, quiet late brokerage. And one of the advisors there, Chris Guthrie. And even before I started saying I was interested in selling a business, I was kind of feeling out the different advisors just to see who I would get along with. And I like Chris. He was like every laid back guy and seemed kind of like on the same wavelength as me.

And then when I told him I was interested in selling, he was like, yeah, like I think this is a business like I'd help you sell. And so then we started working together. And it was a pretty long process because that summer I got married and I also didn't wanna, like I didn't wanna be like in the weeks leading up to my wedding or like on my wedding day being like, oh, like the buyer has a counter offer.

So I was like, it's either gonna be like a few months before the wedding or like after we've already come back from our honeymoon. So we ended up actually doing it. But we like did it for real in October after the honeymoon and everything. Okay. At what point did you decide that you wanted to sell? I don't know. I don't know when I decided like for sure I was gonna sell. I had been thinking about it in 2022, just like what is the path out of this if I don't wanna run the business forever?

And I think as the business evolved, like I think there are founders, like I've heard that there are founders that are good for like getting the business from zero to 10,000 in revenue and then 10,200. And I felt like I was probably the right founder for the early stages and maybe not the right founder for the later stages because the things that I expected to do to get to the next level of sales were things that, I didn't think I was especially good at like sales and marketing.

Like I think I did kind of like a, I think I did okay at marketing. Like we successfully partnered with some like YouTube creators and did successful marketing that way. But I think there's probably a lot more in terms of like being able to talk to big distributors and like resellers and stuff that I just had no idea about. And so like I felt like we were eventually kind of gonna hit a wall where like my skills weren't the right match.

And a lot of the things that I thought that I would need to do to get to that next level were things that like I don't really enjoy doing like it was taking me farther and farther away from the software and more in terms, more pushing me more towards like managing people and hiring vendors and things like that.

And so like once that started happening, I was thinking more and more about like, okay, like is there some path where I sell to like a, somebody who has a related business and like tiny pilot is useful to them or somebody who's like another founder that wants to swap places with me? It's interesting, right? Like money always comes back, right? Like in the earlier when you were talking about like the person on Hacker News saying like, oh, you wouldn't make more money if you stayed at Google.

You say the same thing here. If you're optimizing for money, like then you need to pick up these skill sets that you don't want to have to learn. Yeah. It does take a lot of, you have to be very clear about what you want out of this whole thing to kind of stay the course. I think I would have been comfortable, like if I knew for the next 10 years we could make $250,000 in profit that was around what we did in 2024, I think I wouldn't have been like, oh, we have to keep growing it.

But I think with hardware there is so much variance that like even if you have one year where, oh, we made $250,000, it's like, well, there's so many risks that we can't just sit back and expect to keep making that because there could be like some manufacturing issue. Like we kind of need to like save for a rainy day or like continue getting to the scale where, because that's the other thing.

Like the smaller you are, like the less leverage you have with vendors and so like you're gonna deal with a lot of issues that are annoying just because you're a small vendor without a lot of control, whereas like if you got a little bit bigger, like it gets a lot easier for you. Like that was the experience we had with moving to the contract manufacturer. It's like this is so much better than, in almost every way is like so much better than having to make it in our office.

But you also like to get to that point, like we had to make it in our office. We had to like if we approached them at the beginning, they would have been like, no, we're not making like 40 devices for you. So it's, yeah, it's tough. So in this case, like when you decided finally to actively sell the business and working with Chris, how do you go about figuring out the price or what the set process look like? And just to give some context, I've only done maybe two big purchases in my life.

One is a card and the second one is a house. And yeah, I'm sure this looks like something like the two of those and I'm sure this is true for many listeners too. So can you walk us through what that process looks like? Yeah, it is, I think a little bit arbitrary.

They, when I talk to, when I talk to brokers and I talk to like other founders who had been through this process, they were kind of like, okay, there's like a multiple for your category and then you're gonna sell within like the range of that multiple. So well, first you calculate your, I think different brokerages do it different ways. Some do a bit of, which I can ever pronounce. Quiet light does it based on seller's discretionary earnings.

So it's basically like, you calculate your profit and you correct for things where like, you have, you correct for like inventory that you bought but haven't sold yet. And so you like adjust the numbers to, basically like a cruel accounting so that you're not counting that against your profits. And then you also add back anything where it's not like a recurring expense.

So for example, like the web design stuff, like because that was only, that was like a one time cost, it doesn't, you can make the case that it's not like, it shouldn't really count against your recurring profits. So like if you spent, or like if your office exploded one day and you had to spend $50,000 like fixing it, that doesn't mean that you're like $50,000 less profitable in the future.

And so, and even that is like a little bit, it's a little bit subjective because it's like, okay, you did spend this money and like, you do eventually have to, anyway. Distressions are profitable in a way. Yeah, you come up with this number that's like, here's what I think the next owner could reasonably expect to make per year and they could decide what to do with that money. And then from that number, you have a multiple based on what similar businesses are selling like in the industry.

And so at the time I was selling, the multiple was like for e-commerce business was like 2.5 to 3.5 times SDE. And so I think when we first started selling, we were at like, 1.96 in SDE or something. And so it's like, what did SDE stand for? Sellers discretionary earnings. Oh, exactly. Yeah, so it's like, okay, so if you're making around $200,000 in SDE, then the valuation would be 2.5 to 3.5 times that. So like, somewhere in the range of like, like 550 to 650.

But you can get a little bit of a higher evaluation if it's from a strategic acquire. So that was one of the companies that we approached. We like found a company that was in a similar market to TinyPilot. I actually approached a few companies and I was like, hey, you're in a similar market. And I was hoping that they would see the valuation as like 4X or 5X because it's like, oh, our two products together, they would be super valuable.

But the problem with this company I approached, they'd never done an acquisition before and like kind of didn't know that much about it. And so it was a lot of back and forth over four months. And then they finally came back with a number that was $150,000. That's less than 1X earnings. Like I would make more just running the company for another year. And they're like, oh, yeah, like we think this is fair. And so. Oh, wow.

But yeah, like I think the pricing, I think you're, it is, I think from going through the experience of buying and selling houses, like I think it is actually kind of similar. You try to look for things that are absorbed around the same time and you're like, okay, well, that's sold for this amount. So like I'm willing to offer this.

So in this case, like the final sale that happened was with the company reaching out to you or did you happen to find a company that would be interested in time battle. So I went through the brokerage and that was the main value that the brokerage brings. So they're good at guiding you through the process, especially for a first time founder. Like I found that really valuable. But they're, the main thing where like I feel like they really are in their commission is finding a buyer.

So they have a mailing list of people that are interested in buying companies. And so when they are ready to like, they call it launching a new company, they go through this process of like they collect a bunch of data from you about your finances. They put together like profit and loss statements and they do a little interview with you and you fill out like a really detailed questionnaire. And so they publish it on their website and then they send out to all their email subscribers.

Like, hey, we've got a new company on the market. There's here's a little blurb about them and if you're interested in talking to them, reach out to us and we'll set up conversations. Nice, actually. And are there any negotiating? I'm assuming there are some negotiations in March. So is it directly with you and the company who was buying or is it always through the broker?

So like the thing that officially kicks off, like the kind of like the engagement ring of the sale is the L.O.I. the letter of intent. And so that's like generally the buyer will say, like I want you to sign this letter of intent and like that binds you to me, like you can't try to sell to other people while we're in due diligence. So that starts the due diligence process and gets you to the final sale.

But yet, in my case, like most of the negotiation happened before we signed the letter of intent. For the first two months, it was pretty slow. And then in month three, like two buyers kind of appeared at the same time. And one was Scott who was the ultimate buyer and the other was this pair of founders that I actually found, they approached me so they, that was unusual and that they went outside the broker. But they both seemed interested and we were like, well, we're asking for 600,000.

And Scott was like, OK, I'll offer you 500,000. And I was like, I don't know. Like since we set the number, like our profits been a little bit better, like we, I think we're now a 3x multiple, we would be 625. And we also, we pre-qualified for an SBA loan, which is it means that buyers can get a loan that's backed by the US small business administration. And that opens up the buyer pool a lot. So I was like, OK, like from when we first offered it, we're in a much better position.

So I'm not going to take 500,000. And so I told Scott now. And then the next day, the other two buyers just backed out. I was like, oh. I was feeling really high, feeling like a really great position that first day. And then the other buyers backed out. And I was like, oh, maybe 500,000 is the best I was going to get. And then fortunately, like a day or two later, Scott was like, oh, no, OK, I'll do 600,000. And he was like, OK, wow, great negotiating by me by doing almost nothing.

And so yeah, we move forward in the deal at 600,000. Awesome, that's awesome. I mean, congratulations again. Thanks. When it finally happened, what did it feel like? And in that moment, it actually didn't feel that real in the moment. Because leading up to it, I was so anxious the entire. So due diligence took three months. And even now, that sounds like a short amount of time to me. But at the time, it felt really stressful because it's just like, you're cosly being asked to produce documents.

And I knew every day, normally if somebody is like, hey, can you send me a report on whatever, it's generally like, OK, I can get to that this week. But with this, it's like, OK, I mean, I don't know what was really going on. But I'm assuming the bank is like, well, we're not going to move to the next step until you give us this. So the buyer was buying with the SBA loan, working with a bank.

So some of the requests are coming directly from the buyer if things he wants to make sure are in good shape by the business. And some of the requests are coming from the bank of like, they want to make sure they're not loaning money on some terrible investment. And so yeah, I guess some of these requests, and I'm like, oh, if I take two or three days to respond, I'm probably effectively pushing back the closing date by two or three days. So I really feel a lot of pressure to get this done.

And there are just so many requests. The more they learn about the business, the more questions they have, and the more custom, kind of like specialized questions they have about the business. And I'm also very protective of our customer data. And so I didn't want to be like, sure, here's a Shopify account. Just do whatever you want in our account. And so there's a lot of like, they would ask something.

And I have to go into our bank statements or go into our Shopify and find an answer for them and find a way of giving them the information without revealing customer names or vendor names and stuff. So yeah, it was stressful. But oh, sorry. You asked what I felt like when it was finally done. Yeah, it was weird. Like I felt like it didn't feel real.

Because the weeks leading up, I think we had, I was always worried that something was going to happen where the bank was going to say no or something was going to happen where the buyer was going to decide to back out for some reason. And so I was just constantly worried about what could go wrong here. And then what position will I be left in if I've taken my eye off the business to focus so much on the sale? I'm going to be in a worse position to sell to somebody else.

And then when we finally got all the yeses from the bank and they said, OK, final approval, they said we can close. I think it was 10 days after that. But that whole 10 days, I was just like, I didn't know what to do with myself. Yeah. And I didn't even know what to do. Because I'm like, I could, should I work? At that point, I'm just kind of like doing free work for the buyer.

And we'd already done a lot of work to prepare and get our documentation ready and build all these tools to make it easier for them to take over. So I'm like, it doesn't seem like it makes sense to work. And then it also doesn't make sense. There's another strategy where I work on contingency plans of what happens if this deal falls through. And both of them were so depressing or boring that I just didn't do either. And we just ruminate about like, oh, no, like, what if it doesn't happen?

And so when we finally did get the signature, I just felt like I was still in that state of like, oh, what could go wrong? And in theory, the deal was final. Once the papers were signed, that should be it. But I was like, I don't know how this works. Like maybe there's something where he's going to come back a week later and be like, hey, I changed my mind. And like, let's unwind this. And so it really took me a few weeks before I felt like, OK, like it's done.

Like I've handed off the, I passed the torch to somebody else. And so I think the day of like, logically, I felt very happy that the sale happened. And like the few days after I was celebrating with friends and my wife. But I think it was, it wasn't until like three weeks later where I was like, OK, like this is nice. Like I feel good about the transition went really smoothly. The new owners seem to have like a good hold on everything. And so I just felt like, OK, like now I can kind of relax.

And it's, I think from like weeks three to six were like getting from like feeling mostly relaxed to feeling like totally relaxed and feeling like, OK, this is somebody else's business now. Nice, nice. I remember hearing people talking about this, where it's like, oh, you don't, if there's multiple bitters, you don't actually want to go necessarily go for the one that pays you the most money. But like the sort of the buyer that has like the best fit or like that, you know, has a lot of goodwill.

Yeah. It was really your post though that really drove home. Like, OK, why is that? Yeah, that was always really important to me. Like I told the broker from the beginning, like I definitely don't want to sell to private equity. I didn't want to sell to somebody where it's like, oh, yeah, we're just going to like, you know, fire all the developers and just squeeze money of the product until people realize that like we haven't invested anything in it.

And like I wanted somebody that was going to keep the team and keep investing in the product. And I asked other founders for advice and they were like, well, you can't really control that. Like once the new buyer takes over, like it's really up to them. And I think there's like, that's true. But I think you can also look at the track record of the people that are buying.

Like if if their history is like, you know, a company that bought Travis CI, like when they bought Travis CI, everybody's like, oh, this is bad. Because they had like in their awake, a ton of companies that they had just squeezed and destroyed and like Travis CI, like definitely went that way. Like they really stopped investing in it. So I, that was, you know, front of mind in the conversations with buyers is like, do you want to keep investing in the company?

Like what's the future you see for the company? And like the buyer that I told you, like he was like, yes, I think like I really like the model that you have. I want to continue that and basically make it bigger. And that that has been, I mean, you know, it's short, short time scale so far. But like that's been the impression I've gotten as the transition continues. It was quite cool to hear because he's also kind of similar in that he like was working at a big company and then quit.

And he's like the VP of like, it's like more like BD, right? Like on the business development side. Yeah, he's gonna nice. Nice. So I think it's a, yeah, it's like a pretty cool, like the one that you're 10 million thing. Like, yeah. Awesome. Like the, so the last thing that we want to get to. So you're very, very good at hacker news in the last five years, more than 40 of your posts have got to the front page. And so we have landed in the number one spot.

In fact, you've written a book about this, like in 2020, which we kind of talked about a little bit in the last conversation. Of course. And yesterday, you announced that you're doing this like six week course teaching people on how to hit the front page for hacker news. I actually signed up for it. I saw. Yeah. I don't know when the thing will come out when the recording, but hopefully, you know, there's still a chance for people to sign up. Oh, yeah.

If they, if they listen to this in time, but yeah, like what will prompt you to start teaching a course about this? Yeah. So originally it was a course. It wasn't the original was was a course. But the material felt like I created a course right around the time that tiny pilot was starting to gain traction. And I was like, this is going to be easy. Like I already, I don't have to research anything. That's just going to be a course of like basically a brain

depth of everything I already know. And then as I started doing it, I was like, it was actually hard to do like just hard making slides and like figuring out how to divide up the lessons and the way that I want and like get good recordings where I'm not stumbling or misspeaking too much. And so I ended up feeling like I, I was happy with the material, but I felt like I could have done a lot more with it if I had more time. And also like I just never marketed it at all.

Like I, I showed it to my Twitter followers and I don't even know if I mentioned it on my blog. But yeah, like I felt like and just with tiny pilot was so busy that first few months that I just like, well, obviously the thing I need to focus on is tiny part because like that's the more pressing thing. But now I'm like, well, like I sold tiny pilot and I felt like, yeah, like I kind of wanted to revisit that and I don't think why I feel like maybe I'm falling into the same travel.

I'm like, it doesn't seem like it's going to be that much work to re-record it and like update it a little bit for 2024. And it also like I'm my wife and I are expecting our first child in August. And so it's like kind of like recording this course. Oh, thank you. I think recording a course is a pretty good match for that because it's like, if I launched a SaaS and then it blew up or something and like now I have to step away to care for my wife and a baby. Like that's not great timing.

Whereas a course like at worst I just step away from the course. It's not like if I suddenly get a thousand customers, like that's a big problem because it's just like the course is online and people download it. And so that kind of business to me is like a really nice match for like, I don't know what my hours are going to be like and I don't know if I'm going to be called away.

And so yeah, like I this is kind of me dipping my toe into the water of like educational materials again and maybe I'll do other courses or some kind of book. There's a lot of things I would love to explore more and write about. Nice, nice. I like for one thing I've learned from writing is this like show. Don't tell thing that they taught in high school but really never really like struck me and told like until now.

But it's like a sense of like, especially I think works well for Reddit and Hacker News as you pointed out like where you show what you've done rather than trying to tell. Oh yeah. Like how to do things.

Yeah. Like I um to me I feel like it's like easy to trap because a lot of times like you learn to do stuff you're from your experience and then you kind of internalize it you think about it and then you kind of tell yourself right like hey these are the things how you should do it right so you try to sort of import or export that same tone and then in like writing and then people was like why are you trying to tell me all this like these things.

So I think being able to like switch that mindset has been like yeah. Yeah that's that's one of the things I've learned and I feel like people kind of overlook like I think often people are excited to share like they'll they'll make some kind of software project and they're excited to share it and they're like I got to write a blog post about how cool my

project is and I think people have a like a negative and skeptical reaction to that so if you write a blog post being like my SaaS app like I made a video editor and it's like so great in these ways people are going to be like I don't know like it's probably not and like you're just you're

making claims that everybody makes and what I found that's that actually gets people more interested is like you say something you're not saying like oh my product is so great you say like here's some interesting experience I had when I was building this product so with tiny pilot it was like

I wasn't like hey everybody I like made tiny pilot it's the greatest thing ever it was like I had this idea and like I tried this video capture thing that didn't work then I tried like I found this other piece of hardware and that and so people really responded to like oh that's cool that

you like took us on the journey and like you you learned interesting things along the way and I feel like that's a really underused skill that people people don't take advantage of is like if you want people to pay attention your product like don't go the direct route of trying to brag about it

go the route of like sharing something interesting that you learned in the process of making it nice nice nice I'm looking forward to the course yeah me too well that that's very well said by the way is there one thing that you could share with folks about the course one tip that you would share with people who are blogging but but but may not be where to join the course yeah let's see what's a what's a good like nugget I mean one of the biggest things that I had to

learn the hard way is that when you write like a blog post or any kind of article it's not enough for it to just be a good article like you have to have some way of getting it in front of the people that are a good match for it so like if I wrote like a really great introduction to

Kubranetes and it was like the greatest introduction ever like made it make sense to people that have never done anything with containers but I published it in my like local towns newspaper like people aren't going to read that because like that's not people in my town maybe there's

a few developers like it's just not going to get in front of the people that need to see that and so I think people like kind of just assume that like if you write a good article people will find their way to it and that really isn't the way it works like you need some kind of channel

that's going to connect the people to your article so um so for some people that's that's Twitter um and so for some people that's Hacker News or or Reddit but I would write a lot of articles like and when I started blogging and it would just be like super niche like it would be like oh here's

how like if you're trying to to what was it like I think it was like some video streaming player called Clip Bucket like here's how you do it if you're trying to deploy it on like Google Cloud Project using GCS views and I would publish it and I'm like well like I guess that's actually a separate issue is like you're you're publishing something that's too niche but I think there's there's this problem of like for example like blogging like I I enjoy writing about blogging but I don't have any

really channel like aside from like making a course I if I just write an article about like you know what I'm saying right now like I don't have a good channel to share that because like the communities that are about blogging like usually don't let you just submit blog posts about blogging

because so many people are trying to do that um and so you really need to think through like maybe you have like a really great thing to say about blogging or or about some topic but if you don't have a channel that is going to let you share that and is going to connect you with a lot of people that

with with a lot of people in your target audience like you're not going to get people to read it like maybe you're going to put people through Google but like certain articles or things that people will search for in Google and certain things like nobody's going like there's certain topics where

people aren't going like might be interested in them but they're not going to just Google like oh I want to read a critique of like this technology it's hard for them to find that even if they they might actually be interested in that they wouldn't think to to look that up yeah well that's

really good advice and like thank you so much again for joining us your journey has been having me journey has been super inspiring congratulations again for everything selling time thank you Elliot getting married and expecting the first baby we're super excited for you

and watch the head of you and hopefully in let's say a year or two you're doing something else and we would love to have you back on the show yeah I'd love to come back awesome hopefully I'm doing something interesting enough to talk about for sure thank you so much Michael this was all the fun

all right thank you thanks all it's hey thank you so much for listening to the show you can subscribe wherever you get your podcasts and learn more about us at softwaremissadventures.com you can also write to us at hello at softwaremissadventures.com we would love to hear from you until next time take care