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

Episode Date: July 9, 2024

Having quit Google in 2018 to bootstrap indie software businesses, Michael is known for writing very transparently about the ups and downs of his journey. After recently selling his hardware business TinyPilot for $600K, Michael returns to the show to chat about the misconceptions about running an indie business, the hardest part of selling a company, and why “hardware is definitely out” for his next move 😂 Segments: (00:04:22) The complexity of selling a hardware business (00:08:49) Why "hardware is definitely out" for Michael's next venture (00:11:57) The evolution of TinyPilot (00:16:29) Inherent risks of a hardware business (00:20:53) The most terrifying 10 minutes of 2023 (00:24:52) The pricing strategy (00:31:48) Building the team (00:35:32) Recognizing the limits of solo founders (00:37:22) What and how to outsource? (00:42:45) Tracking hours and managing expectations (00:46:50) High-level math and profit projections (00:52:17) Working with contract manufacturers (00:54:12) How to know when to delegate? (00:58:16) Misconceptions about running an indie business (01:03:56) The importance of value capture (01:09:26) Identity and purpose after selling a business (01:13:40) How Michael arrived at the decision to sell the business (01:17:53) The process of figuring out the price (01:20:36) Negotiation and the final sale (01:25:09) Why due diligence was so stressful (01:30:09) The importance of buyer fit (01:34:16) Michael's new course "Hit the Front Page of Hacker News" (01:35:17) The power of "Show, don't tell" (01:38:14) Sneak peek of the course Show Notes: - Michael’s blog post on the process of selling TinyPilot: https://mtlynch.io/i-sold-tinypilot/ - Michael’s excellent monthly retrospectives on building TinyPilot and beyond: https://mtlynch.io/retrospectives/ - Hit the front page of hacker news: https://mtlynch.io/notes/htfp-live/ Stay in Touch: 👋 Make Ronak’s day by leaving us a review and let us know who we should talk to next! [e-mail]   Music: Vlad Gluschenko — Forest License: Creative Commons Attribution 3.0 Unported: https://creativecommons.org/licenses/by/3.0/deed.en

For your next business, 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 TinyPot, 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, like 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 like 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 like I'm not really getting the full value of what I'm doing. And I'm like 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, it's like, you know what? I like electronics. I want to put a board together and maybe even sell it to a consumer. What would you ask them to think more about? How to discourage them from doing it? The advice cannot be don't do it.

I'll preface 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 Misadventures podcast. We are your hosts, Ronak and Gwan. 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've 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 or indie hacking before it was cool.

So the first two years, you were trying a bunch of different projects and made 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, uh, in April,

you actually sold the company for 600 K big congrats. Thank you. I've been following your journey for years. So like, you know, I'm, I'm really, uh, I'm super happy for you. Oh, thank you. Um, so, so I'm sure you've done a lot of like introspections 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 but it was only worth that if I could complete the transaction.

Like if I, there's no like, I'm tired of this, I 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. Um, and so just seeing like how much that I could build, build a business for myself that was actually pretty complex to, to sell to somebody else.

And like what, what that position feels like it, it did affect my planning for future businesses of like, okay, like if, 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, to exit if, if I get to the point of wanting to exit. Is that part of complexity, like also just having like people now involved, uh, like on the team and having to figure out like what that transition would like for them, like that also makes things more complicated the people were actually the easiest part i think the the team because the way that tiny pilot 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. And so their day-to-day, they had workflows that they knew how to run themselves. And so transitioning them to a new owner, that part was pretty easy. I think it was just the complexity was all of the moving pieces that need to fit together between the vendors and the, like our distributor and the people that help design the hardware. And there's with a hardware business,

there's 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 for people that didn't listen to the first episode, could you give a quick recap in terms of the different pieces? Because I do read about, right, it is quite complex. You have vendors you need to work with. 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 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 a contract manufacturer. So they ended up handling the whole end to end of manufacturing circuit boards and manufacturing the cases and assembling everything and flashing the software. So there was that piece. There was also the 3PL, which is a third party logistics vendor. They're 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 continue to have access to the hardware from the contract manufacturer and from the new owner. Those were the major vendors that we worked with. So you said this kind of changed your thinking around what's the criteria for the next business to kind of reduce the complexity. Yeah. Have you refined what are the attributes you're looking for? 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 mentoring 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 really want to write code myself. And so when I was managing six people and managing relationships with all the vendors,

there was really very little time to actually write code. And so I just like see the developers writing code and being like, I want to do that too. So I think the next thing, I would want to set it up so that there's bandwidth so that I can write code myself and take more of a hands-on role in the technical development. So we got a chance to talk with Brian Kentrell. Yeah, from Oxide.

Right, right, right. So then, right, we're talking about like, oh yeah, you know, it's much harder to build a company that's both hardware and software, but it is a much more enduring business. And I feel like TinyPilot is in many ways, right, like it's both software and also hardware. Yeah, yeah. But at the same time, it's, I feel like TinyPilot is in many ways, right? Like it's both software and also hardware. Yeah. Yeah.

But at the same time, it's, I feel like, right, it's a pain in the ass 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 aren't... It's kind of irrational 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 we would work with them but i was always thinking like oh man like this is an like a sass product there's no way they can be like, hey, Comcast said it delivered these bites to me, but they didn't really arrive. I'd be like, well, we can check. Yeah. So it wasn't even that frequent that customers had issues with shipping, but whenever it happened, and also I wasn't really even in the critical path for that. 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 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 SaaS or 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. There's not that many people that are making custom hardware at my scale because it's really hard to bootstrap that. 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, 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... It was built on Raspberry Pi. And so Raspberry Pi actually has a pretty high voltage requirement. I think it requires 5 volts, 3 amps. And the USB port on your computer, even USB 3, I think it's only like 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 like, oh, is it because I'm telling people to run it on like lower power? And so I worked with, I found these electrical engineers, like kind of, uh, through, through, 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. And so they made this, this, uh, 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, okay, 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, okay, 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, like I'll manufacture like 50 a month for you like they they need to be on the scale of

like 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 like and that was the other thing like originally it was my my then girlfriend now wife we were like 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, okay, 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 like 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. Just like we would make enough revenue to get to the next level of like, okay, now we can automate this a little bit more like outsource a little bit more of this work um to to get to more scale and in this specific go ahead sorry just do my little joke here um when when you got your then girlfriend to be the employee, do you change the label to family business?

Sorry, I'll stop. I'll shut up. I'll shut up. Please, Ronak. Yeah, we didn't figure it into the branding. Congratulations, by the way. Go on. Where I am?

Sorry, jokes aside. In this specific case, 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 it right, you're selling direct to consumers.

It's not like you're selling to like some vendors or third party. Like people, individual people are actually ordering these devices. Right. Yeah. We had one distributor that would order in bulk, but that was for Europe and then in the US. 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 in that was for Europe. And then in the U S we would sell the, in the U S and everywhere else we would sell directly to the consumers. So, um, I don't know of many people who are trying to build, um, physical products like this, especially in the embedded system space and they are selling directly 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 you took it to. What are some the lessons that uh they could learn from what in other words what would you ask them to think more about or uh some lessons that you could share with them how to discourage them from doing it well the advice cannot be don't do it i'll preface that i think i mean if i can't say don't do it i i think i mean i i don't think that it is a blanket don't do it but i i think it 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. So it'd 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 like $60,000 in their hourly time. And then we need to buy all these supplies. For hardware, you can't just say like, hey, I want to make 200 of these. You really have to buy components that you're going to make like a year or three years worth of it. And so it gets very risky. Like fortunately, a lot of components

that you have to buy are like on the order of cents per unit or like a few cents per device. But some of them would be pretty expensive, like 50 or like $1.50, 50 cents or $1.50 per unit. And so if you're buying like 3000 of those and you get it wrong, that's a big risk.

And there's just like a lot of things that I didn't anticipate at the beginning that could sink the business. So like 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 ourself. But we were finding PCB manufacturers to to assemble or 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 U.S. And I was like, well, there's a lot of risks with China, just geopolitical and shipping and communication barriers.

Let's try, like, finding a shop in the U.S. where the turnaround time could be much lower. And then they ended up ruining an entire batch of a product. And, like, there's not really much we can do they they gave us a refund but they still like we lose all the materials that we sent to them and we were like okay like we'll try it again and then the same thing happened they they ended up having manufacturing defect and um so we couldn't use any of the results oh that sucks and so fortunately we we had tested them on a pretty small scale like like 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 kind of we're going to lose $50,000 or like we're going to lose all the money that we need to make it through the year. And then there's things like just get like a lot of the shops that do assembly or manufacturing PCBs, they're overseas, like to get to an affordable rate, like you're working with China or Vietnam or in the Philippines. And so like there's risks of

something getting lost or damaged when they ship, there's risks of customs taking it or uh or or charging you like a surprising fee we had one thing i don't even remember what this component was but we had to order like fourteen thousand dollars of this component from china and to prototype we had to ship it we had to get it shipped to the u.s and we got it and they were the the customs was like three thousand dollars on it i was like oh man like 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 we had i think we had to pay customs again and it's just yeah so i mean my biggest piece of advice is just recognizing like how much risk there is in, in doing iterations and, and, um, being forced to carry

inventory. Because if you're in a physical product, like you have to, you're a lot of your money is going to be tied up in inventory. And that that's puts a strain on cash if you're just starting out. So my biggest advice would be just to, to be aware of the risks and make sure you're not risking more than you mean to. Um, speaking of inventory, I think one 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 will like link it in the show notes, right? Was I started with the most terrifying 10 minutes of 2023.

Oh yeah. Could you go through that? Yeah. So it was, it was like a time in tiny Pilot 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 who tracked down my home address? And like, what is this? My first thought was like, is this a disgruntled customer who tracked down my, my home address and like, what's happening? And so I'm like, uh, 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, I'm the handyman for the office. And I was like, oh gosh. And we, I live actually like very close to the the tiny pilot office and so i just drove down there and like the entire drive i'm like oh god this is before we switched to the contract manufacturer so all of our inventory was in that office and we had renter's insurance but like i got it when i first moved in so i think we had like twenty thousand dollars of coverage and we probably had maybe forty thousand dollars worth of, but it also meant like, if, if that was destroyed, we don't just lose $40,000. We lose that plus like being unable to

sell anything for six months. And so I was like, Oh God, like what's going to happen if the office is just totally flooded. And I get there and like, so, 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 like the the water came within like an inch of our doorway and just didn't go in at all and so i was so relieved but i was like wow we really need to like i really can't bet everything on this office. And that was like a huge motivation. And we need to ship operations to a third party logistics vendor. So like, we're not the single point of failure. I mean, we're still at risk of that if, if the three, 3PL floods or catches on fire, but it's, it's more like somebody else's problem to fix. Like that was the other problem was like, after it flooded, they're like, well, it flooded because

a sprinkler exploded. And so now due to fire fire safety like you can't go in the building so i'm like okay well it's pretty hard for us to ship anything if we can't go into the office um and fortunately they were able to 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 i was going 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, like what do I do if they have to like the other employees? Like I was the it guy.

Nobody else knew how to set up the network and all the computers and the printer and stuff. And so 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, okay, this is, 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 go about deciding the pricing, for example, per unit? We talked about this last time where I was just like, I don't know. I said that like every time i raised the price i just thought like that's too high and then i would raise the price to that level and then people would still buy and i would go okay i guess it wasn't too high but really i would in the beginning it was like okay i want to make a hundred dollars on each unit just because i think that's that's gonna be like what it would be worth it to me to like 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 just keep let's increase the price and see how people react and i i eventually got to a point where i did notice sales start to slow down with higher prices but it 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 or it could be something else. And for complicated reasons, like our tech stack for the Shopify store was not in a position to do like real A-B testing where we could in parallel test different prices. So it was mainly just like I would change the price and then let it run for like a week or two and just kind of like a lot of it was gut feeling. Sometimes I would do analyses on my blog and say like,

okay, we sold a little bit more at this price. And then I realized ultimately like 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 customers 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 for tiny pilot that we 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, okay, over the course of this person's use of tiny pilot maybe we're going to spend like 30 on average on supporting them and so i would look like when i started thinking about pricing i was like okay like let's just maximize revenue because like of course everybody wants the highest revenue and then i was like well like if i could 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 would 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 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 like premium customers. Like I charge a premium and I only deal with them and I deal with like a 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 price. Higher profit. Yeah.

I don't know. I mean, my experience is pretty limited to just the, mainly TinyPilot is the only business I've run 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 like win mindshare. And so that's why we would, TinyPilot 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 in their home uh lab setup they could say like hey i like this and then when maybe they have a job in it and they they go to their team and they say hey like i've used the the open source version of this like i think it would be cool to get a paid version um but in terms of i think for for a lot of indie businesses like the small customers higher profit probably is like for almost everybody is probably going to be the the best match because if you're small and you're bootstrapped, like you have very limited resources. And,

and so like supporting, if, if it's a choice between like having one X or 10 X, the customers, even if, even if the profit is slightly higher at 10 X, like 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 like you'd expect we would have fortune 500 customers that would be like hey we want like 50 devices and i would be like oh no like they're gonna have so many questions for us and like expect so much because they gave us so much money and we just never hear from them again like we would maybe hear from them a year later and they want 25 more and And I'm like, how's it working for you? And they're like, it's great. Yeah. We just, we ran into some issues, but we fixed them. I'm like, okay, great. That's great. And then, yeah, then, then you get customers that are like, Hey, can you give me a discount?

Like I can't afford this. And I'm like, okay, fine. And then they have like a million feature requests. They, they want like white glove service. Um, so yeah, catering to the, the like premium customers, I think it's not even like, you know, if you can, if you can sell like 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 um so yeah i think for for indie businesses like the the way to go is is small like higher end customers uh this is something that tim ferris taught i don't know if you know tim ferris but yeah i've yeah i read that yeah so the four-hour work week yeah so he i think this is one of the things he talked about quite a bit in that book as well as whenever he shares his journey.

And he shared something similar, as you said. The more price-sensitive customers actually had the most amount. Like, they resulted in least amount of revenue slash profit plus the most amount of overhead. 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 two dimensions that I'm thinking of right now. One is, like, one, how did you go about assembling them uh in terms of like so two dimensions that i'm thinking of right now one is like one how do you find them two 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 on the software. And there was a blogger that I liked. And I think we just emailed back and forth, just kind of been like, hey, like you're writing about a similar thing. Like we kind of cover 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 TinyPilot. And so we got started 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 engineers 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 logistics 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 like what customer service could do and the things that like users would, would ask for that were technical problems because the, the, the people that were doing customer service, like they didn't have a background in software or Linux. And so sometimes people would say like, Hey, I like, I'm seeing this error on the command line. Um, and then they would have to escalate that to me. And so I was like, okay, there's a gap here. Like we need to hire somebody who's like, not exactly customer service, but not exactly like a developer. And so that's when I created the, I mean, I didn't invent this role, but support engineer. Um, and so I brought in people

for, for support engineering. Um, looking back though, I think I kind of did it backwards. Like I think I should have probably outsourced, like when I hired a developer, I was like, Ooh, I'm, I'm spending so much time on customer service. Like I need a developer that can help me with the code, but like, why would you, why would you outsource like the most expensive thing? Like it would have made a lot more sense to hire somebody to help me with the customer service. Um, but that was, that was the thing I learned a lot through the, the course of running the company is like, 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 like, it's not really that

hard to do. And so like, I remember one example was like, a customer was like, oh, can you send us like a custom invoice for like with our names on it and with these fields and stuff? And I was like, okay, like, you know, customer service isn't going to know how to do that. And so like, I looked up templates and did it and took me like an hour. And then I finished and I was like, wait, customer service, like I'm, I don't have special expertise that like, I'm not like, I don't have invoice training, like customer service. They're smart. They could have figured out the same thing that I did. And I 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. 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 like 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 are like don't fall specifically in customer service or development and stuff. And I I just always felt like, Oh, it's like, it would be unfair to ask somebody to do anything else. And when I talked to people, they were like, no, like we're fine doing this. And also like,

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 like exactly what we were hired for, like we want to get, um, more of this perspective in different parts of the business.

That, that seems like a tricky thing, right? Of, um, 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, right? Like making, 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 outsourced 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 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 of being too disconnected from customer service if you totally outsource it and just don't pay attention. But I think there's 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, I know what the role is supposed to look like whereas i think things that were hardest for me to hire for were things were like i didn't know what a good job of it looked like um so i think we talked about like my fiasco trying to hire like a design agency uh ends up spending 46 000 on like what what should not have been a $46,000 job. Um, but for developers, it's 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. Cause 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 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 full-time employees the 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 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. 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, like contractors have, you know, 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 U.S. 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 things it's still such a pain so I would try to get everybody as a contractor role but like I didn't 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 versus, let's say, a full time employee, what resources can folks look out for in terms of like how do I draft a 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 paperwork done 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 i don't know if i actually did it right i found contracts online and 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 it 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 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 U.S. So the chances of it going to some kind of international court was pretty low. making sure that the the expectations from both sides are 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 get paid for or um you know that it and and the work was pretty flexible like they they worked they chose their own hours and they they had the opportunity the option of like sometimes working a little bit fewer 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 i'm 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 this case, if you're paying hourly and they are choosing their own hours, is

it more like you expect something to take X amount of time and they say yes or no? Is it like software estimation or is it something else? Yeah, sometimes. Okay. 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, like I was much more comfortable with it because I'd done things like that before. For like 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 the 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, like it was, it was mainly just kind of like looking at how they were spending their hours and thinking about like whether that matched my expectations. Like 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, you know, answered three questions. Then I would be like, Hey, like, I think like, let's talk about what's going on. Like I think maybe you're putting too many hours into these tickets and um and i think we we did have that with 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 like i i would do contract to hire so most people i would 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,

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, an hour and a half on. And I'm 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. Um, like, I think this is just like a skill mismatch for what the role requires. Um, but yeah, it was, it was mostly like just kind of eyeballing it and seeing like, okay, like, does that seem sensible? And like, sometimes it would be, you know, I, I, I always like gay people to benefit the doubt. I never was like, I, 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. Like I they're adults. Like they're

going to, I, if they're trying to like trick me, we have bigger problems than timesheets. But I think there were there were also times where i'd be like hey i uh filed this bug and like you ended 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, what, where should we give up? Where should, like, where is it worth investing? When should you check back in? Cause I think you could say

like you check in every three hours or something to see if you keep going, but that interrupts slow as well. So it's hard 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 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 amortized costs per month you could break it down to. And then you have an idea of

how much profit you need or 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 or at what point you wanna order next, et cetera. Can you walk us through what that high level math looks like? Oh, I, no, I was not doing high level math. The meme that comes to mind is like the one with the equations with the live version. Yeah, that's a questionable question.

Yeah, I mean, my mental model was like, I was thinking about it, but it was like a very simple heuristic because my mental model was like, okay, like let's say I'm spending like, you know, $20,000 or $30,000 per month. That might be too high. I forget what the numbers were, but like, let's say $20,000 per month was like, you know, 20 or $30,000 per month, that might be too high. I, I forget what the numbers were, but like, let's say $20,000 per month was like, uh, staff and the office and the things

that are going to like be recurring every month. And then I would say, okay, like just to, to keep afloat, like I have to sell this many devices. so that number was let's say like a hundred and then i'd say okay so um after a hundred like then i'm just making whatever the profit is on the device i i take the 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 like, that's, that's going to be my profit for the month. But that was a big problem. Like I always had a really difficult time of, of just doing the math and figuring out like, what, what is my profitability this month? Because so much of my

money was being reinvested into the future. So like development, like that's, you know, 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 notice like, hey, you're not making any changes to the product. But then other things like it's, yeah, there's a lot of things like investing in next iteration of the hardware like when you're when we would iterate on the hardware we're spending six months or a year before we get to realize the the benefits of all that investment and all that work and so i would have a hard time thinking like, can we afford like, I'm putting in like $150,000 into hardware engineering for this next round.

And then like, how much more cost is there going to be as we go through the manufacturing process and stuff? So yeah, like I had a hard time of figuring out like in the short term, like how profitable am I? And even when I would look at it at the annual level, like there's still a lot of, of like future investment, um, that's included in the annual numbers, but yeah, I was, I would be happy if we would be cashflow positive. Um, even though that was like not, 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 like, yeah, because they have to source a bunch of new components. Yeah. 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 and electrical engineering. Makes sense. Any other pieces of advice for folks

who might be working with contract manufacturers or looking to work with them? I was going to say, I'm very impressed by Aronak's questions. It sounds like he's really going to build how he's going to next hardware startup. I was like, wow. I know nothing about hardware. And on this podcast, we have spoken with a few people

who know a lot about hardware. And almost every single one of them is like, don't do it. 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 a contract manufacturer, I think the really important thing is having somebody that you trust. Cause I think the hard part is like when you're working with contract manufacturers overseas,

like you can go on like Alibaba and, and bid out, uh, like contracts to a lot of manufacturers there. But like, I don't know, at least for, for me, like, I, I don't know, at least for me, like I don't know the difference between these companies. Like I can't distinguish between like what's like 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 like we had built up a trusting relationship and we worked with them to find like, OK, what's who's going to be like a trustworthy vendor? And so they can tell us like, oh, this vendor has this reputation.

Like we've done a lot of work with them in the past. So I think like 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 like kind of a bootstrapping trust problem of like, if you don't know what good looks like, like how do you know what, like how do you find an advisor that like, how do you know what a good advisor looks like? So I think for us, it was like working with, working with an advisor in the US helps a lot just because

it's within the US, it's much easier to judge like, well, 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, okay, they have like 50 employees and they work in a real office. It's also, I think the low trust andtrust and high-trust society difference. And most of North America and Europe, I would say, is more of a high-trust society, whereas as you start going east, like in Asia, please Asians, don't hate on me, I'm an Asian myself. 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 kind of a reoccurring theme. As you've gone through this journey over time, you've learned like, hey, I can delegate this, I can delegate that. I'm curious if you've developed a framework of, it could be the next business you're building, like the new skill sets you're picking up. Are there signs that you're looking out for that when you're doing something, you're building, right? Like the new skill sets you're picking up. Are there signs that you're looking out 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 Ferriss 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 going to 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 realized 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 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 um but that that's the thing i can i can find somebody to do and so um for for my next thing i think I would look for the things where what's something that

like, A, I don't enjoy doing that much. B, 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, uh, like what's, 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, uh, one of the ones that I would outsource quickly. But I, and 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 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 outsourced 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 um so yeah like with delegation i think it's important to 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 BuzzFeed 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 meet people at meetups that want to start an indie business or like have tried to start an indie business and their expectations are so high for what it's going to be like. Like they, they hear these stories about people like quitting their jobs. And like six months later, they're making a hundred thousand dollars a month from some SaaS business. And they're like, that sounds great. Like, I want to 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 going to like, I'm going to 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 have you been doing this? And he was like three months. I 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 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 the results so i think if if you're doing poorly like you're just not going to talk about it publicly and the people that are doing well like they're going to talk about it a lot and i think the the channels where you find out about these stories like they also even if there's a distribution of people that are doing okay and really great like the people they're doing really great are going to get a lot more attention and i think there's there's likely people also like exaggerating results uh 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 like 10 percent or something.

And so I think people are like, oh, I want to have a high number. So I'm just going to say. So I think that's the biggest misconception is like people go into it thinking like this is going to be a great time like i'm gonna you know throw off the the uh yoke 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 i a recruiter from google reached out to me like three months ago and was like you can have your old job back with no interview. And I was like, no, I'm zero tempted to do that. Um, but I think it, like you have to go into it expecting it's going to be hard and like,

it's going to 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 an indie business are very different than the challenges of, uh, working in big tech. And it's kind of like higher highs, lower lows. So it's, it's, it's just very different. And like different people are, have disposition dispositions that make them suited for one versus the other.

Or, um, sometimes you just like catch the being an indie business, like you're, you're much more vulnerable to luck. And so like if you have a lower tolerance to just like going a year and, and not really seeing much progress, like that's going to probably burn you out in a way that you, 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 Google recruiters like, hey, you can have an old job back and no interview required. Why say no? So last time we spoke, you mentioned you shared your reasons for why you wanted to do any business yourself. Have those reasons evolved since after you've done TinyPilot? I don't think so i think probably just become i've become more confident in the same reasons like i really like having control over my day and and getting to decide what i want to work on and uh you know like getting to decide what direction I want to take the

product and where I want to, like that was the thing before I started, like 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. Like 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 like do really creative things with it like you can make like a viral video that you or some kind of like clever clever marketing and i find that part of it extremely fun like you have so much more freedom to do that than if you're working in big tech where like you're you're very limited to what the role you were hired for is um and so that i

think that to me is like the probably the biggest reason um and i also really like even though so the the blog post i wrote about selling tinyPot, 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, that I'm capturing the full value of that rather than like maybe I'm working for for Google and I'm making $400,000 a year but I I feel like I'm actually generating like two million dollars in value and so I'm like oh that it sucks that like I'm not really getting the full value of what I'm doing. And I'm like 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's incentives are aligned like you you have a reason to help your teammates and like you can all grow together in a way where it's it's not like zero sum that's really well put i haven't thought about value capture in that sense but yeah you're right it's very demotivating right if you're only able to capture like five percent of the value that you create right kind of like right okay if i'm you know pulling

all these um i'm putting all this time just to create that extra value but if i can't capture it yeah yeah and and google actually had this program when i was there called area 120 where it was like it's a startup within google like we'll we'll let you like spend six months creating your own startup and we'll give you google resources um and I was like, well, like, that's kind of cool. But like, if it takes off, then what happens? Like, if you are outside Google and you create Dropbox, like you're the founder of a billion dollar company and you're, you're worth hundreds of million dollars. Like 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 hardness of like the journey but at the same time it's like the optimism i'll put okay i can't speak english but optimism of like um right like i said this in the last um 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 yeah having like the best i would like i do not regret it and this is like the best um and um yeah so that has been like super i think inspiring um oh well 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, 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 a really hard month for me like I'm really not enjoying myself because they they then have to work with me and so I struggled with like I don't want to I don't want to like mislead people and and put on this persona of like everything's going great, I'm super happy, but I also don't want to 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, yeah, had a hard time like figuring out

what the right level of candor is in the blog of like, I do want to share as much as possible. And like, I want to share how it really is, but I also want to do things that make people understand that I'm, there's limitations where I can't share like a hundred percent and there's going to be things that, that readers can't see that, that are going on. nice okay doing a little bit of a pivot um so talking about the the selling process so you wrote a very nice blog post we'll link it on the selling process um there were funny cartoons uh for the due diligence which i think was the bane of the entire process yeah it was really hard um so the part that stuck out to me, I'm sure Rana has other questions on this as well,

was like the question that you asked yourself. It's like, do I feel a loss of identity? I'm just going to read it verbatim because I thought you put it super well. So you said that, I've heard other founders say that they struggle with the loss. Sorry, I can't speak English. Oh, with the loss of identity after they sold 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 a 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, like what is your identity and how did you like build that over the last years?

I still think of myself as a developer mainly, like when I meet people and they ask me what I do, I say developer. Well, also, cause it's hard to explain, like I'm an indie founder and I run a blog that some people read. But yeah, like I mainly think of myself as a developer. And like 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 like 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 going to retire and go live on a beach someplace. And so the identity part of it felt like, yeah, I'm just going to keep doing what I've been doing. I'm going to 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 read in the post, by the way, that you mentioned TinyPilot only took 20% of your

time, but 90% of the stress. Wait, so 20% of the time, how? I mean, 20% of like 168 hours a week. So like 30 or 40 hours a week. I see. Okay. That part makes sense. But one thing that you mentioned earlier and you, by the way, plus what Vang was saying, there's a lot of transparency in that post and you've shared real numbers, which thank you for doing that. It's not common or easy for anyone to do that. So you mentioned broker, for example, in this case. What does that look like typically? How do you find one? Did someone reach out to you? Yeah, I did have brokers reach out and they didn't seem like they were going to lead to a sale.

And so I reached out to Effie 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 Effie 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 like USB cables and chargers and diversify your numbers that way.

I was like, USB cables? How am I going gonna do that and so i was like when he told me that 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's that they were like my 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 had to sell is if i become like the usb cable king um like i don't 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, Quietlight Brokerage. And one of the advisors there, Chris Guthrie.

But 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 a very 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 I could 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 want to, to like I didn't want to 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 going to be like a few months before the wedding or like after we've already come back from our honeymoon so we ended up uh actually doing it that we like did it for real in October after the honeymoon and everything. At what point did you decide that you wanted to sell? I don't know.

I don't know when I decided for sure I was going to sell. I had been thinking about it in 2022, just like, well, what is the path out of this if I don't want to 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 10,200. And I felt like I was probably the right founder for the early stages and, and maybe not the right founder for the later stages because the things that I, 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, I did kind of like, I think I did okay at marketing like we we successfully partnered with some uh like youtube creators and uh did 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 and like resellers and stuff that i just had no idea about and so like i i felt like we were eventually kind of going to hit a wall where 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 I don't really enjoy doing. It was taking me farther and farther away from the software and pushing me more towards managing people and hiring vendors and things like that. And so once that started happening, I was thinking more and more about, okay, is there some path where I sell to somebody who has a related business and TinyPilot is useful to them or somebody who's 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 would have made more money if you stayed at Google. It's like the same thing here. If you're optimizing for money, like then you need to pick up these skill sets that you don't actually have to learn yeah um it does take a lot of you have to be very clear about what you want out of this whole thing yeah kind of stay the course eh i i think i would have been comfortable um 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 or because there could be like some manufacturing issue like we we kind of need to like save for a rainy day or like get 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 going to 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 it gets a lot easier for you Whereas like, if you got a little bit bigger, like it, it gets a lot easier for you. Like, and that was the experience we had with moving to the contract manufacturer. It's like, this is so much better than in,

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 had 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 in working with Chris, how do you go about figuring out the price or what does that process look like? And just to give some context, I've only done maybe two big purchases in my life. One is a car 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, it is, I think a little bit arbitrary. They, when I talked to, um, when I talked to brokers and I talked 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 going to sell within like the range of that multiple. So, um, well, well first you calculate your, uh, I think different brokerages do it different ways. Some do a bit of, which I can never pronounce. Um, quiet light

does it based on seller's discretionary earnings. So it's basically like you calculate, you calculate your profit. Um, and you correct for things where like you, you have, 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 to basically like accrual 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 the 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 it it's uh a little bit subjective because it's like okay you did spend this money and like you do eventually have to anyway um especially profit 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 196 in SDE or something. And so it's like, okay, what did SDE stand for? Seller's Discretionary Earnings. Oh, I see. Yeah. So it's like, okay, so if you're making around $200,000 in SDE, then the, um, the valuation would be 2.5 to 3.5 times that. So like some, somewhere in the range of like, um, like

550 to 650. Um, but you can get a little bit of a higher valuation if it's from a strategic acquirer. 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, like 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,

like 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 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, yeah, like we think this is fair. And so, ended up but yeah like i think i think the pricing um i think you're it it is i think from going through the experience of buying and selling houses like i think it is actually kind

of similar you you try to look for things that are sold um around the same time and you're like okay well that's sold for this amount. So like, I'm willing to offer this. I see. So in this case, like the final sale that happened, was it the company reaching out to you? Or did you happen to find a company that would be interested in TinyFile? 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 earn 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.

I see. And are there any negotiations? I'm assuming there are some negotiations involved. So is it directly with you and the company who's buying or is it always through the broker? So like the the thing that officially kicks off like the kind of like the engagement ring of the sale is the LOI, 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 yeah, 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 in 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, okay, 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 three X multiple would be six to 25. Um, and we also, we pre-qualified for, uh, an SBA loan, which is, it means that buyers can get a loan that's backed by the U S small business, small business administration. And that, that opens up the buyer pool a lot. So I was like, okay, like from when we first offered it, like we're in a much better position.

So like, I'm not going to take 500,000. And so I told, I told Scott, no. And then the next day, the other two buyers just backed out. I was like, Oh, I was like, I, I was feeling like really high, like feeling like a really, in a really great position that first day. And then the other buyers backed out and I was like i i was feeling like really high like feeling like a really in a really great position that first day and then the other buyers backed out and i was like oh like maybe 500 000 was the best i was gonna get and then um fortunately like a day or two later scott was like oh no okay i'll do 600 000 i was like okay wow i great negotiating by me by doing almost nothing um and so yeah we we move forward in the deal at $600,000.

Awesome. That's awesome. I mean, congratulations again. Thanks. Yeah. When it finally happened, what did it feel like in that moment? It actually didn't feel that real in the moment because leading up to it i was i was so anxious the entire so due diligence took three months um and like 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 constantly being asked to produce documents and i knew every day like normally if somebody's hey, can you like 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 like 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 of things he wants to make sure are in good shape about the business. And some of the requests are coming from the bank of they want to make sure they're not loaning money on some terrible investment. And so, yeah, I get some of these requests

and I'm like, oh, if I take two or three respond, like, I'm probably effectively pushing back the closing date by two or three days. So, like, I really feel a lot of pressure to get this done. And there's just so many requests. Like, the more they learn about the business, the more questions they have and, like, the more custom, like, kind of, like, specialized questions they have about the business. And I'm also, like, very protective of our customer data. And so I didn't want to be like, sure, like here's a Shopify account, just like 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 like find an answer for them and find a way of, of giving them the information without like revealing customer names or vendor names and stuff. So, uh, yeah, it was stressful, but, oh, sorry. You asked what it felt like when it was finally done. Um, yeah, like it was, it was weird. Like I felt like it didn't feel real because the, the weeks leading up, I think we had, I was always worried that like something was going to happen where the bank was going to say no or something was going to happen where like

the buyer was going to decide to back out for some reason and so i was just like constantly worried about like oh what what could go wrong here and then like what what position will i be left in if i've like taken my eye off the ball of the business to focus so much on the sale like i'm going to be in a worse position to sell to somebody else. And, and then like when we finally got all the yeses from the bank and they said like, okay, 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 like, I didn't really even know what to do because i'm like i could should i work like 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 to prepare and like get our documentation ready and and like build all these like tools to make it easier for them to take over um so i'm like do i it doesn't seem like it makes sense to work work and then it also doesn't make sense like there's another strategy where i like work on contingency plans of like what happens if this deal falls through and both of them were so like depressing or boring that i just didn't do either and would just ruminate about like oh no like what if it doesn't happen

and so when we finally when we finally did like get the signature i just felt like i was still in that state of like oh what could go wrong and like in theory the deal was final like once since 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 like he's gonna come back a week later and be like hey i changed my 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 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, okay, like, this is nice. Like, I feel good about like the transition went really smoothly. The new owner seemed to have like a good hold on everything. And so I just felt like, okay, like now I can kind of relax and it's i think from like weeks three to six we're like getting from like feeling mostly relaxed to feeling like totally relaxed and feeling like okay this is this is somebody else's business now nice nice i i remember uh hearing people talking about this um where it's like oh you don't if there's multiple bidders 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, okay, why is that? Yeah. That, that was always really important to me. Like I, 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 gonna 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 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 the new buyer takes, 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, the company that bought Travis CI, like when they bought Travis CI, everybody was like, Oh, this is bad. Cause they, 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, they really stopped investing in it. Um, 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 i sold to like he was like yes i 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 i've gotten uh as 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 i think so he's gonna nice nice so i think it's that yeah it's like a pretty cool like the one million to 10 million thing. Yeah. Awesome. 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 seven of them have landed in the number one spot. In fact, you've written a book about this back in 2020, which we kind of talked about a little bit in the last conversation um and then yesterday uh you announced that you're doing this like six week course teaching people on how to hit the front page for hacker news um i actually signed up for it i saw yeah um i don't know when the thing will come out when the recording but hopefully you know uh there's still a chance for people to sign up if they listen to this in time.

But yeah, like what will prompt you to start teaching a course about this? Yeah, so originally was was a course um but the material felt like i created the 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 these i don't have to research anything that's just going to be a course of like basically a brain dump of everything i already know and then as i started doing it i was like oh this is actually hard to do like just hard making slides and like figuring out how to divide up the the lessons in 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, I felt like, and, and just with tiny pot was so busy that first few months that I just like, it's like, well, obviously the thing I need to focus on is tiny pot because like, that's the more pressing thing.

But now I'm like, well, like I I've sold tiny pilot and I felt like, yeah, like I, I kind of wanted to revisit that and I don't think it, well, I feel like maybe I'm falling into the same trap.

I'm like, it doesn't seem like it's going to be that much work to rerecord 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 the kind of like recording this course oh thank you I think recording a course is is a pretty good match for that because it's like if I launched a sass 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. 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 until like until now but

it's like a sense of like um 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 people like how to do things yeah like i um to me i feel like it's like an easy 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 these things? So I think being able to like switch that mindset has been like really huge. Yeah, 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 make some kind of software project and they're excited to share it. And they're like, I'm going 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 TinyPilot, it was like, I wasn't like, hey, everybody, I like made TinyPilot, 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 to 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's really 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 sneak peek uh but but may not be able to join the course uh 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 Kubernetes 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 local town's newspaper.

People aren't going to read that because that's not... People in my town, maybe there's a few developers. It's just not going to get in front of the people that need to see that. And so I think people kind of just assume that if you write a good article, people will find their way to it.

And that really isn't the way it works. 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 reddit but i would write a lot of articles like in 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 a 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 it's 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. And so you really need to think through, like, maybe you have, like, a really great thing to say about blogging 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 find 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 it they wouldn't think to to look that up yeah well that's really good advice and michael thank you so much again for joining us your journey thank you so much for having me journey has been super inspiring uh congratulations again for everything, selling TinyPilot, getting married,

and expecting the first baby. We're super excited for you and what's ahead 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 a lot of fun all right thank you thanks so much hey thank you so much for listening to the show you can subscribe wherever you get your podcasts and learn more about us at software misadventurescom. You can also write to us at hello at softwaremisadventures.com. We would love to hear from you. Until next time, take care.