Jason Cohen: Creating ‘Naked Businesses’

Deceit infests business: salesmen deceive, PR spins, tech support deflects, marketers mislead, strategists out-wit, founders preen. Entrepreneurs mislead to seem big and stable; multi-nationals mislead to seem relateable and human. It’s the game. But what happens when you don’t play along? I’ve found something surprising after 12 years of building four companies from scratch: That honesty is more profitable than deceit. Not because it’s ethical (though it is), but because it’s more effective. Turns out that doing the right thing is just good business.

Jason is the founder of Smart Bear Software and author of Best Kept Secrets of Peer Code Review. He blogs weekly on startups and marketing from a geek’s point of view at http://blog.asmartbear.com/jason-cohen.

This talk is from BoS USA 2011.

Transcript

I was, uh, I was talking to Mark last night and complaining that I had to go after Clayton, like this is going to be a hard act to follow.

And last year I had to anchor the first day, which is also hard because it was kicked off by Seth Godin and then there was Eric Ries, and a huge day like this. I mean, we’re only an hour and a half in to this whole day. I imagine a lot of people are already starting to get fatigued with ideas, right? Also, I was the last thing preventing people from drinking beer, which was going to be provided for FREE, so that was harsh.

So I was kind of complaining, then I realized that there is no good slot- when is the good slot to speak? After lunch when people are tired, there’s always a presenter before and after both, so there’s just no good slot to speak, I think. Why not me?

So I’m going to talk about honesty, because I think not many people do.

And I want to start with Smucker’s. This is Smucker’s “Simply 100% Fruit” line. And this is strawberry as you can see. Any guesses at to how much of this can, what percent of this can, is strawberries? Yeah, it’s 30! That’s right, whoever said that. 30% of this is actually strawberries. And the rest is stuff like apple juice, lemon juice, pectin, and then because that stuff doesn’t taste like strawberries they have to add “natural flavors,” right? And when a consumer advocacy group challenged them on this, they said, “Well, you see where it says spreadable fruit there? Well, it has to be at least half preserves or it won’t be spreadable.” Like that’s some kind of explanation for this.

Anybody here surprised, like shocked or dismayed at this? Like, “[gasp] I cannot believe it!” Nobody. And you’re not surprised because I think lying is normal and expected in business. It’s expected in sales calls, marketing, packaging, your product page, “About Us,” negotiations, deal-making, kind of everything, I think. It’s expected, and accepted, that you lie. And what I want to talk about for the next hour is not whether that’s ethical, I don’t care. I want to talk about, does it make you more money? When does honesty, or lack of honesty, make you more money?

What do all these countries have in common?

[Sign: Republic of Cuba, People’s Republic of China, Lao People’s Democratic Republic, Democratic People’s Republic of Korea] [laughter] NONE of them are republic, none of them are democratic, none of them are run by the people, right? Yet there it is.

Sort of like simply 100% fruit. I think, uh, this is especially interesting to me because it doesn’t work. Everyone just laughed. I mean, no one here, like if you didn’t believe that the 100% fruit had fruit you certainly don’t believe that North Korea is a republic, right? So it obviously does not work. So what does it do? All it does is establish that they will lie about even obvious things. Right? They’ve just destroyed any possibility of trust, to NO benefit at all.

And it’s easy to laugh at it, but I contend that a lot of the stuff, again, that you say on Twitter, that’s on your home page, that’s in your marketing material, that’s in your product description, is exactly the same. Almost no benefit, very transparent, probably hurting you. So for example, here’s a website, very typical website. They are the “leading provider of internet marketing solutions.” Leading! This is it! This is the top. And you can tell, I mean, look at that website, it looks cutting edge in this field of internet marketing, does it not? [laughter]

Yeah, okay, it wasn’t changed since 2002, that’s okay! I’m sure internet marketing hasn’t changed a lot since then, it’s all right. To me this is like the People’s Republic. It’s just not true. But again, I don’t really care about the fact that they’re spinning or exaggerating, I really want to ask, does this make them more money? Would they make more money if they said something else, or is this actually a good technique?

And where better to start than social media because if you ask any pundit what are some of the key things you have to do to be successful in social media, they say- all of them say- “You’ve got to be genuine, authentic, honest, in a word, human.’ Even though we just established that humans are not really often those things. So, this is a field where it’s common knowledge honesty is supposed to win, and does it and do people and is that how people get ahead in social media?

So in order to try to answer this question, I looked at Gary Vaynerchuk, who you may know is on the vanguard of marketing on Twitter. He believes that, as you can see, honesty is important for all companies to do, in any media, particularly this one, he’s got almost a million followers, people love him, and so if he’s preaching the gospel of honesty in things like marketing and social media, then hopefully his followers will agree and do the same. It’s hard to measure if people are honest of Twitter, that’s kind of weird, so this is what I did. I used a tool to do a sentiment analysis on people that talk about @garyvee. That’s his Twitter handle. Sentiment analysis means if it’s positive or negative, that’s all.

And the result is that only 9% of the time does anybody say anything negative about @garyvee. But it gets worse than that because I started looking at the actual tweets that were marked negative, and stuff like this- “good damn or bad damn?”- that’s not really negative, that’s just something odd. [laugher]

This guy is self-deprecating, “oh, I’m terrible, oh!” This guy said Gary’s book is doing better than Tim Ferriss’s book, okay, not really negative is that? “I accidentally just butt-dialed @garyvee.” [laughter] I think what that tweet is really saying is, “I got Gary Vee’s phone number!” [laughter] When I went through the actually tweets and tried to see which ones were negative, I found 0 negative tweets about Gary Vee. In thousands. 0! And that’s not honest. There’s no way you agree with everything, there’s nothing negative to say, ever. Nothing to question, nothing ever, that’s not honest. I looked at my own Twitter followers. I didn’t even have to look at the individual tweets, it already came back 100% positive. Not true. But what’s interesting, if you look at the people who are celebrities in social media, you find that they do tell their own brand of honesty, what they feel is true. Even though it may offend a lot of people, right? Joel Spolsky says that “99% of developers suck, and in fact, of that 1% most of them are not even fit to work at his company.” Right? Stuff like that.

I was talking to James Altucher, he said that on his blog, he was getting about 100 hits a day. And then he made a decision in November of last year that he was going to tell all the truth about all his stuff and within a few months he was getting 10,000 hits a day. The people that are successful do, in fact, tell the truth. In other words, all that stuff people say you should do is true! You should be honest and genuine and all this stuff. But they don’t. They don’t. Now, is telling the truth the only reason why these folks are successful? No no no, right? There’s also content and lots of other things. But it’s obviously a key component. And something everybody knows they should do by witnessing that’s what they say you should do, and they don’t do it anyway. In this notion of “It’s 100% Positive” I feel is not only like the language that comes out of places like North Korea, it’s not only Twitter. I think it’s generally the language of business. And I think it’s most obvious in the feature-comparison charge or the analysis chart. The analysis is that you have all the checks, you’re the best, and all your crappy competitors are found lacking in all kinds of ways, right? And this is interesting because it’s a different kind of dishonesty. Like, I believe this tool X-Compare pro, I believe that it supports pdfs, that’s not a lie. The lie is that this tool on the end Araxis Merge, I happen to know that it has about 100 features, literally. This would seem to suggest otherwise. It’s a lie by omission. And you know the old phrase, a lie by omission is twice the lie. And the question again is this making them more money? And all these charts look the same. Except for this one, it’s got red checks and not green. I like this one because it’s a lice treatment, and one of the benefits is it’s non-flammable. [laughter] Talk about understanding the job and what needs to be done. Oh my god! Which is good, I mean, if you like putting your cigarette out on your kids’ heads then this is important to you. I guess. [laughter]

They’re all like this though, right? They’re all the same. Yours probably look like this, too. And your investor pitches probably look like this, too. It’s 100% positive, again. Lying by omission, same mistake as social media, again the question is, though, does this make you more money? Wouldn’t it turn off your customers if you admitted that your product had any flaws at all? Now here’s the neat part. There are hundreds of companies running, asking this question as an experiment, today, and measuring whether it makes them more money, and I’m going to show you the data that comes out of there. Isn’t that nice? Data. [voices agreeing]

And they’re doing this in the form of putting out customer reviews that are uncensored on their product pages. Good and the bad. Now, it’s obvious why this is good for consumers. For example, here’s shirt you can buy on Amazon, and surely you are wondering right now, “Is this shirt hideous or totally awesome?” [laughter]

Now, fortunately, Amazon has customer reviews, and so you can tell objectively that is totally awesome! Right? And you can even learn why it’s totally awesome. One guy says, “I have this exact picture tattooed on my chest but the shirt comes in handy in cold weather.” [laughter] Nice. Another one says, “My child was born without bones but I put this shirt on him and he grew bones.” [shrug] Actually, I like that 148 people give it 1 star. “I hate it.” Okay. More than give it 2 stars, anyway. But to take a more serious and realistic example, here’s a quote we put on our homepage on my company WordPress Engine: “They solved problems [others] couldn’t,” the site was “more profitable,” and he doesn’t say he likes us or loves us, he says, “Total crush!” Oh my god! [laughter]

Right? This is totally going to increase sales, no doubt the good customer reviews, testimonials, will increase sales. But- if you’re going to be uncensored, here’s a fun review. I like this one because if you search for this product on Google, this review appears before the product’s actual home page. It’s titled “Worst Product Imaginable” so you can see what’s coming. He starts with the good news [on-screen: I didn’t hang myself after using it][laughter] then he gets to the flip side and says it’s terrible. He describes how he would put a pipe bomb in it and ship it back to the manufacturer. But he says, “I know the government’s watching me, so I’m just kidding.” He has a rant like this. And then he has advice for people still considering buying this product. So obviously, this is going to hurt sales.

So it’s a great question to say, on balance, what’s going to happen to our revenue if we put up these customer reviews? And you’d think some forward-looking start-up would be the one to run an experiment like this, but actually one of the first was Canon Camera, international consumer brand company, not one you’d think would have the balls to do this, but they did. And I want to show you what happened. So first of all, of course they knew their sales like this block, relatively speaking, whatever the sales were beforehand. And then, once they put up the customer review feature, they were able to see after the fact which ones were high-rated and which ones were low-rated. And then of course they were able to measure the change in revenue on the online store in these two categories. So not surprisingly the high-rated products doubled in revenue. Terrific right? High reviews, no surprise there. And so the only question now is, with the low-rated products, with the loss in revenue, on the balance are you making more money? In other words, is it a good idea? So here’s what happened to the revenue of the lower-rated products. Almost the same increase! Uh, good! I guess! Right? Yay! But why? Of course, they wanted to know. So they did dig in.

And the answer I experienced myself just a month ago. This is my girl Abigail, aw, and she’s playing with her space ship, which she loves to do. Recently she had a second birthday and she was wearing a crown, and I said “Oh, is Abigail a princess?” And she goes, “No! I scientist.” [laughter] Yes! Yes! So here’s Scientist Abigail with her space ship, putting her little man on the toilet, actually, but that’s okay. So this is a toy you put the toys in the door, close the door and you can fly it around. Right? No big deal. Now the first time she did this, she picked up the rocket ship like this and flies it around because that’s what you do with a rocket ship, right? This is a normal-use case for a plastic rocket ship. And the door opens up, hits her in the head, all the toys fall out.

And Grandma, who bought her the space ship, said, “Oh yeah, it does that.” HUH? Why did you buy a rocket ship that you knew had this weird flaw that the door hits her in the head and so on. And she says, “Well, I needed to buy a space ship that was under $40, and this one had all the features I wanted, and I figured this didn’t matter that much.” And here’s the crux of why the low-rated products, if you describe why they’re low-rated, can sell more. Because we’re used to the idea that a cheaper product is going to have flaws, or it’s not going to be as good in various ways as expensive products. The Canon camera on the right here costs 30 times as much as the one on the left. Obviously, it’s going to be better in various ways. And we’re okay with that. Just tell me what is actually the trade-off I’m making, and I’m probably okay with some trade off, and I’m more likely to buy right then because I understand what I’m getting into. So the revenue is better. So they also measure profitability, which you might think would be similar because it’s just the same widgets going out, right? And obviously, profitability of the high-rated products went up. But get this- the low-rated products became even more profitable. And the reason is that returns were diminished 20%. And they were diminished for the same reason- because if I know what’s wrong with it, and I get it, and it has that flaw, I’m not going to return it, probably, or not as often. Of course. And the reason that is such a huge impact on profitability is that returns, even in software, are devastatingly expensive. Because- and I’ll just go through this really fast- let’s say you sell a camera for $100, now Canon’s profit margin is 10%, so they spent, in general, $90 to make it and ship it and market it and so on, so they made $10, fine.

Now the product is returned, and the rule of thumb is that you lost ALL of your money. Because sometimes you can’t resell the camera and you did lose all your money and anyway you spent time on tech support and you had to pay to ship it back, and maybe you had to fix it before it went back out, and you had to pay to repackage it, blablablablabla. You lost all of your money, now you’re down $90 that you spent getting rid of it. And so, because you’ll only make $10 a camera, the next NINE cameras you successfully sell, the profit of that just goes to getting back to zero. You sell ten cameras just to get back to where you were when you sold the first one, so returns are devastating. And they’re also devastating in software, by the way, because it is tech support, it’s wasting your time, and so forth. There we go. Oh, I’m pushing the wrong button, sorry. [laugh] So, you might think, maybe it’s just Canon, maybe it’s just this product and so forth, but BizarreVoice, which is a company in Austin that ran this experiment for them, because they make the software that does the reviews, they’ve done this with, this very same experiment with all these brands, and 500 more customers besides, and every single time it’s exactly the same result.

Of course, the exact numbers change, but revenues always go up on both types of products, and profits on the low-rated ones go up even more because returns go down, every single time. Even in this kind of market. And this brings up something Eric Spink brought up- is Eric here? I know he’s not speaking this year, I guess not- uh, this is Eric. He’s not a legend as he says. Eric has this great quote, he says, “Tradeshows are like sex. When they’re good, they’re really, really good. When they’re bad, they’re still pretty good.” To me, that’s telling the truth about your products, too. Even when it’s bad news about the products, even when you’re talking about flaws, actually, it’s a good idea. So that makes you rethink whether this [goes back to a feature-comparison chart] is actually the right way to present your product to your customers, whether this actually makes you more money, I contend it does not. And I think it doesn’t just apply to describing products, it’s all of this language, it’s all this ridiculous language, this North Korea-type of language, which I feel is not earning you anything. And this is a simple example, especially if you look at the company About page, it starts to get really awful. Like, here’s an example of one I saw recently. “webMethods provides business integration software to integrate, assemble and optimize available…” I can’t do it. [laughter]

Sorry, I can’t do it. It’s horrid, right? It doesn’t… I don’t know what it means, I don’t know what they do, I know their stock price is down 90% over the last 5 years, but I don’t know what they do. It’s just masking anything that’s resembling the truth, or [laughs] resembling information. It’s sort of, to me, like North Korea, it’s hiding behind saying anything because I guess that way, what, they can’t catch you on a lie, and I’m not sure. I’m not sure what that means. So the opposite of this, this is the time when I pick on Peldi. Seems like every time I do a presentation I’ve got to pick on Peldi. Here’s the opposite. This is what Peldi’s company page looked like when he started Balsamiq mockups. I know everyone in this room knows Peldi, I don’t have to introduce him. I love it because he starts with saying, “Hello!” Hello, weird. I mean, the first thing he does is admit, ‘one guy in a studio.’ That’s it, and there he is. With the exposed pipes. That’s it. And then, it gets much worse. I mean, that’s not too bad. Then it gets worse. He goes, “I know, it sounds iffy.” Iffy?? Iffy, my company’s iffy, it says, on the company page. [laughs] Great, it’s nice to have entrepreneurs with confidence. How can one person support a whole software company? “That remains to be seen.” So in other words, I know this sounds like it’s not going to work, it probably won’t, I agree with you. [laughter] What the hell? Right? [laughs] So, this was Peldi’s revenue which he published on his blog so it’s okay for me to republish. Here, Peldi made about a million dollars in his first 12 months. Now, did he make a million dollars because he was honest? Well, I think it was a component. Obviously, there were other components like having a product people wanted, and that worked, right?

But here’s the key thing.

You would assume that saying that kind of stuff on your company page would prevent sales. And maybe some people would buy because they want to support a single person doing a start-up, but, come on, in general, especially with the competition in design tools and stuff, surely that would prevent some kind of sales especially with something so ‘iffy,’ and yet obviously what it did not do is prevent sales, right? This kind of brings me to my central thesis about what to do with honesty in business, and that is to be proactively honest. And I think that’s what Peldi did. I think that when Peldi says, “I’m one guy, I’m trying to make this work,” that’s a lot of truth to lay on somebody and what it does is it earns him the ability to do lots of other things. Like, he can not answer an email on Sunday on tech support and he gets forgiveness because it’s one guy in his studio. And he can decide to raise rates and apologize and say, “But I’m trying to make this work and I think this is more fair,” and when Time Warner raises my bill by $3 I pitch a fit and say maybe we should get satellite and like it’s a whole thing, and if Peldi raises his prices by, you know, $20, I think in general he gets some leeway there because when you tell the truth you get to do other things. You get to have problems and people give you forgiveness. You get to do things and people will give you forgiveness. But I will, of course, this is sort of a nebulous example so I want to give you a lot of other specific things, again, with data, although I will point out that I think the Canon example is the same thing.

By admitting that the products have these certain limitations, it then gives you the credibility to say, “But it does have these nice features. And I think maybe in general you want to buy it.” So I want to give you an example- with data- again, from my company WordPress Engine. This is a chart of our short-term cancellation rate, meaning, a customer that has been with us for only a short period of time, like a month. And what is the percentage of those folks who cancel? You can see that generally it’s around 7-8% of those brand-new customers who cancel, and there was this massive spike, what the heck did we do wrong there? Well, the answer is we had an hour of downtime. And my company is a WordPress hosting company, so downtime is literally the worst thing you could do, is just not host any more, right? That’s the worst.

So imagine you’re a brand-new customer and you set up your blog and then it’s down for an hour. In fact, I’m surprised that more than one if five people didn’t cancel, right? It’s pretty bad. So, not really a surprise there. No new information yet. Here’s the big thing. We had a twelve-hour outage there. Twelve hours! In order of magnitude worse. Look at the cancellation rate. Literally, 100% of the problem of cancellation was mitigated the second time we had an outage. What did we do differently? And the answer is that we were proactively honest about what was happening. As soon as we even thought there might be a problem, we started writing about it, twittering about it, and then while it was going on we starting explaining what was happening. It actually wasn’t even our fault, it turns out, it was actually the data center we were in, and so on.

And we kept up through the whole thing. And just by being completely transparent about the problem that was happening, we literally negated all of the negative impact that such an event has. All. So, even if you agree that this is a good idea, so you think, okay great, whatever Peldi put on that page, whatever nutty thing he wrote, that worked, or worked good enough, so I’ll just go to the way-back machine and pull that out, [laughter] and I’ll put that on my company page, I’ll change the name and a couple of particulars, and I’ll check that box, now I’m being transparent, and I move on with my business. And unfortunately that doesn’t work either, it’s not that simple, and I want to tell you a story so you can see why that doesn’t count.

This is Blake Mycoskie, he’s got a company that sells shoes. Blake was in Argentina, in the poor sections of Argentina, and he saw that the children had no shoes. Here’s why that matters, there are two reasons why this is important. The first one is that if you don’t have shoes you get sick all the time, because you have punctures and cuts and you’re stepping in mud and water, and so you’re constantly getting infection. The second thing is that if you don’t have shoes you can’t travel far, because if you don’t have shoes obviously you don’t have other methods of transportation that are even better, right? And if you can’t travel far then you can’t go to school. And if you can’t go to school then you can’t have a level of education greater than those around you. And if you can’t do that, then it’s unlikely that you’ll ever be able to change your situation of poverty. So not having shoes is a really big problem, and Blake said, “I’m going to fix it.”

So every time you buy a pair of shoes from his company, called Toms, he gives a pair of shoes to a kid in Argentina. That’s why the flag is the Argentinian flag, and it says Toms. And now it’s around the world and not just Argentina and he’s given away millions of pairs of shoes. Here’s Blake, giving shoes to kids. This is marketing. It’s a great story, it’s all for the right reasons, but this is still marketing and advertising, right? Not all marketing is bad, just like not all sales folks are evil, as you’ll see, I think it’s tomorrow when Paul Kenny talks. Not all marketing is bad, but it still is marketing. This is the reason you should buy these shoes from Blake, right? So, it stands to reason, just like you might copy Peldi’s home page, this is a good marketing trick! It works! And it’s a good message.

So, in 2010 Skechers decided to try it. Bobs! Changing the world. Buy a pair of Bob, Skechers will [grunts]. Those shoes look familiar? Yeah. They look really… even the shoes are the same shoes, right? Everything’s the same. They got such a torrent of hatemail that in 24 hours they pulled the campaign. But think about this for a second. Think about this from an economist’s point of view. What do you mean, hatemail? Kids are going to get shoes! What’s the problem? Okay, you copied some other guy’s idea, and? They’ll sell some shoes, and more kids will get shoes. What is your problem? If you liked one thing, why not the other? It’s as identical as it can be, right? And the only difference is that one of them is honest, and the other one is a marketing trick. And the only thing separating the ‘trick’ from the real thing is the honesty. And so, this is essentially their tactic, right? This is their thought process. You can copy it and do the same thing, and that’s not honest so it doesn’t work because honesty is the part that worked, not the actual thing that you did. It’s not Peldi’s specific words on the page, it’s that he was honest and that was consistent throughout the company and that’s the thing that people respond to. So, rather than copying Peldi’s words or any nice thing that you see that you like, you want to copy the inspiration or the thing behind it that’s driving it. And so, as an example, using me again because that’s only fair, here’s our About page, our company page, and we show a picture of Austin because we’re really proud that everyone’s in Austin, and we say things like, “we proudly host 0.0006% of the 50 million WordPress blogs on Earth, and more everyday,” saying like we know we’re small and we know our place, but we’re growing and we’re still proud of it.

Also you’ll notice how Peldi’s thing was very friendly, here’s a picture of Peldi and you know, whereas this is a little more formal because our products are also more expensive so that’s part of the kind of look and feel that we want to have that we try to be consistent with. At the bottom, though, this is the interesting thing, I think, because no other hosting company says this, and it’s not about features. Because, after all, it’s all service and stuff and we have reasons why we’re better than this one and better than that one, but at the end of the day, it’s service and stuff and people obviously host all over the place so. [shrug] This is what we say: When you host with WP Engine, you’re betting on us, personally. And so here’s who we are. And then, sort of like Peldi, we have pictures and bios and the same kind of stuff you often have on the page, but I think that message is actually the interesting thing. That we’re okay with one of our key advantages, or just differentiators, let’s say, being us, and whether you want to bet on us when your site has problems, or not. And I think that’s an interesting claim, certainly one that our competitors don’t make. So this is our brand of who we are and how we try to be transparent.

But all this brings up another questions because, so you don’t want to have omission like the feature comparison chart because the stuff you’re omitting would actually make you more money to admit, it seems. At the same time though, you want to put yourself in a good light, obviously. Right? So where’s the line between sort of spinning and not really being honest, and telling the truth. So for example, if you put up a picture of yourself like Peldi did, he didn’t pick a crappy picture in bad lighting. Obviously didn’t just select randomly off the iPhone and throw it up. You’re going to, all the pictures of you in all kinds of lighting circumstances are honest, those are all images of you, but clearly you’re going to pick one that’s better. So, to sort of lead into how I think you should do this, and how I’ve done this, I want to start with some examples from a dating site, online dating site, called OkCupid, because they actually have some data on this very question about pictures and how to select them.

So, first of all, if you’re male, and you’re trying to get dates, here’s what you do. The best thing you can do is have a picture with an animal. Women like it if you have a dog or something. Second best is if you show off muscles like this guy, although they note that you first should have muscles to show, otherwise it is a negative [laughter], okay. Worst thing you can do is be traveling. Nobody likes a wandering guy, apparently. Don’t want to see you elsewhere. To be fair, we have to do the other side. Women are actually just the opposite- we don’t want to see you with your horse. Nope, that’s the absolute worst thing, is the animal stuff. [laughter] Nope. No competition. Now you might think something like cleavage, showing skin, would be the most, it’s actually not at all. By far the best thing you can do is what they term the ‘Myspace’ shot which is what these women are doing, which is where you hold the camera at an angle and above and you kind of get big bobble-head, little tiny feet, sort of look and feel to it, and that’s the best thing you can do. Bizarre.Obviously, all kinds of photos represent you but for some reason that’s better. So, what is the equivalent of sort of selecting among the things you could do, all of which are sort of telling the truth, how do you select the things that are best for you? How do you use that? And the same principle, that if you tell the truth about the things that are bad, then you earn permission to get all the benefits or all the advantages that you also have.

This to me is the guiding principle of how you address things, especially in the worst conditions, which is when you are trying to overcome some kind of objection, and all start-ups have this, right? Worry are you guys going to be out of business in two years, you’re not big enough to do what I want, you talk too much on your blog, you don’t blog enough, whatever. Right? Like there’s always these things that we all get. If you’re not, I don’t know, IBM. Even then, they probably get other objections. So I want to explain in three very specific cases how I use the same principle to overcome these sort of typical start-up objections, because you are small. What are you going to say about it? And you’ll see the pattern there and see that you can use this pattern in fact for any of this kind of stuff.

So the first one, again, we get this one a lot. “I need 24/7 support.” And of course if you are a start-up you do not have that. Right? So here’s how we address it. I say, “If you call Rackspace at 3 am on a Sunday, they will answer the phone on the first ring, and the person who answers that phone will not know anything about your blog, and they will not be able to fix it. They will say, ‘the server is working, the network is up, do you want me to reboot the server?’ And that is what’s going to happen. They’re there, but they’re not going to help. And you’re right- you’re right! We’re not going to be there at all. No one is going to answer the phone. Too bad. But here’s the different- when you call Rackspace at 2 pm on a Thursday, the same guy answers the phone on the first ring and still can’t help you, but not us! Then everybody at the company is an expert, we don’t have too many customers in ratio to the number of experts we have, and therefore we actually can help you. So in general, you’re going to be better off with us.” In other words, by admitting “You’re right, it sucks, um [shrug] we don’t have that support, you’re not going to get it. If that’s important that somebody answers the phone you should not be with us.” I say that to people. But by admitting that, I get to say, “But we’re smarter.” And I get the believability in that because I admit that we have, I agree, we have that problem. This is really common, right? Everyone gets this.

So, someone says, “I don’t want to be your biggest customer.” And I say, “Of course you don’t! Who wants to be the biggest customer of a start-up? Nobody wants to. I get that. In fact, it’s worse than that. We probably will have scaling issues with you, and you’re going to have some weird custom thing that we haven’t seen before that’s going to break, like, it’s going to be really bad probably.” I tell them that. I say, “But, but for our company to be successful, we will have to make blogs like yours work. We have to! If we can’t make blogs like yours work, we will literally go out of business. It is that important to us. And so, whatever things may arise, you can be sure that everyone at the company’s first priority is going to be fixing that and making it work. We have to.” And another thing I can say is, “Right now we have a biggest customer, too. And they had the same problems and they can’t wait for you to sign up so that they’re not the biggest customer, and let me give you their phone number so that you can ask them what it’s like to be the biggest customer at our company. And you can see for yourself whether that feels like a good idea to you.” So, again, by saying, “You’re right. This is dangerous. This is bad. I’m not trying to skirt around, I’m not trying to wave a magic wand- you’re right! But we know that. If I know that, then that means you can have some confidence that I’m going to actually follow through with what I say about making you the most important customer, also.” To date we have never once lost a biggest customer sales call. Not once. And I say this stuff. “It will probably not work.” I say it every time. Usually it does work, by the way, without too much extra problem, but I don’t say that! I admit that, I set up that expectation that it probably won’t, every time, and we never lose the sale.

The third one- this is just for Paul, because here’s the point where I rag on sales guys a little, and then Paul can come in tomorrow and save the day on that. So, um, ‘enterprise’ sales just means you’re asking big companies for lots of money. And the reason I wanted to put this one in is that it’s also traditionally an area where start-ups have a tough time breaking in. Because it’s the ‘If you buy from IBM, you don’t get fired’ sort of syndrome, it’s hard for the little guy to break in. For all these reasons. But at Smart Bear, this is exactly what we did. So I want to give you at least a little sliver of I started off with these sales calls, these demos, again, using these same principles. How we won those accounts. So a typical Enterprise sales call is exactly the stereotypical, horrible thing you think it is. There’s a sales guy in a suit- nobody else in the room is in a suit- sales guy is going through Power Point slides with stuff like the company mission statement, which nobody wants to hear, right? No one cares. Talk about a pile of crap. Whatever the mission statement is. Right? It’s like web methods. All mission statements are crap. And the sales person doesn’t know all the answers to the questions about the product for some reason. There’s a sales engineer sitting there. She does know the answers. But she’s not to speak unless spoken to. [laughter] Laughing means that you agree that that is the case. So, of course, I’m not capable of this little dance, right? So, I came in and, first of all, it’s easier to start just by tackling the elephant in the room, the obvious absurdity that most business is all the time. Just attack it head-on. That’s a fun way to break the ice. So, I said, “I know everyone here I hope is looking forward to my 47 Power Point slides. So I really hate to disappoint you but I don’t have any slides. I was just going to show you the product and answer questions.” And of course everyone’s like [makes sound], because nobody wakes up in the morning saying “I hope he’s got Power Point! I hope there’s a lot of slides in there, bullets and stuff. And I hope he reads the slides, too.” So that was easy. But that’s the easy truth. Just having fun. Then I had to get into saying bad things about ourselves, which you never do in a typical Enterprise, you do not say bad things.

So here’s how I started, for context. I was selling a software-developer tool that allowed developers to review each other’s work. So they can identify and fix bugs. So I started by saying, “You know, a lot of people get our software thinking they’ll install it, and then their software will just have fewer bugs. And it’s not true. It often doesn’t work. And that’s because, if the developers don’t want code review to work, if they don’t believe in that process or, honestly, if they don’t really value fixing bugs, they just don’t care, then just putting a tool in place is not going to fix that. Tools don’t fix social problems. So a lot of times you put it in place, hoping some magical process will just make fewer bugs, and it’s not true. People have to want to become better, otherwise they just do a perfunctory review, and they ‘don’t find anything,’ and then you have wasted a lot of time.” So, ‘this might not work.’ Sound familiar? [laughter] You never say that! You’re not supposed to say that. Leading with how it’s probably not going to work. But because I said that, it earned me the credibility to say the next thing, which is this: “But I do think a tool can save time and aggravation in four very specific ways.” And I said them, one, two, three, four. “So as I go through the demo, you can see for yourself if you think it would save you time in those ways, and if it does, then I hope you agree that this is an obvious buy.” So again, the question is, this is not normal, but does it work? One time, a guy pulled his wallet out, slapped it on the table, and said, “I’ll buy it right now.” And I said, “Why?” Remember, Enterprise sales are usually like an 18-month cycles and POs and whatnot. Right? I said, “Why?” and he goes, “Because if that’s your attitude about the product then I know it’s going to work and I know you’re going to work with us and we’ll be successful at it, let’s just go.” [shrug] Now, that’s not normal, that doesn’t prove anything. So here’s the data. 50% of the time that I did a demo, using this same technique- I always did the same stupid script and the same dumb line about slides and everyone [grunts] about the slides, every time [laughter], right? 50% of the time I closed an order worth $12,000 or more. And very few Enterprise salesmen of any industry anywhere has that kind of stat. Now, again, was my technique at the beginning, is that why? Well, it’s obviously one of many reasons why, but again, I feel especially as a start-up, benefit is in these big orders. And that 12 grand was just in the beginning, usually we were going more for like six figures and now it’s become seven. And I do believe that this was one of those things where a start-up can do it, big companies won’t, in fact your competitors probably won’t even though they’re start-ups, because it’s unusual. And it immediately differentiates you from all the other guys in a suit that walk into a room and talk to them about crap. Immediately. So I think it worked for us. So I want to ask this question. What happens at that very moment where you decide to lie? You’re on the phone with a potential customer, and they say “How many people at your start-up?” and the answer is 1. You pause and you say 3. What happened right there? Because you obviously made the choice, because the obvious answer is 1, right? [laughs] Like, clearly. But I think we’re so accustomed to lying all the time, exaggerating, and whatnot, it’s actually easier in some twisted way to say three. Which I find interesting, just in itself. But what happened in that moment that you lied, what’s going on there? And is it okay, do you want to change that, do you want to have some of these advantages, what’s happening? So I think there’s two things happening here, which are instructive.

The first thing is that you are probably continuing an existing lie. If your website makes it look like it’s a substantial company, and there’s only one person, you can’t really say there’s one person, because it doesn’t make sense, and you’re discovered. You’re revealed. Or at least it’s inconsistent and doesn’t feel right. But there’s an interesting thing about that which, again, here’s some data from this book from Adelaide and Amy [on-screen: book entitled ‘The Big Enough Company’]. They run a coworking space in New York women entrepreneurs, and when they were writing this book of theirs- you can kind of tell what it’s about just from the title- it’s well-titled. They did over 200 interviews of entrepreneurs to make this book to find out, what do all these entrepreneurs think in retrospect about these things that not only made them successful but made them fulfilled, maybe even happy. And one of the things that came up is this issue of lying, even these tiny little white lie lying, was detrimental not only to the growth of the company, and to their own sense of fulfillment and happiness running the company. And this is how- I forget if it was Adelaide or Amy who told me it this way, but here’s how they said it: they said, “The benefits that are accrued from lying are small. Whereas the penalties if you’re discovered are massive.” So again, this idea of, like, it looks like the company is big, it turns out it’s not, then that kills the trust and it kind of kills the whole thing. And the benefits from lying are very small, just like the benefits of North Korea pretending to be a republic are small to non-existent. So when you think you’re sounding big by saying 3 instead of 1, if you’re talking to L Martin, there’s like twice as many people in the conference room at their site as there are in your whole company, it’s not like they’re going to think, “Oh, 3! That’s substantial.” No! Like there’s almost no benefit there. In fact, on your web page when you’re trying to look big when you’re not, you don’t look that big. You’re not really fooling people as much as you think you are. And to the extent that you are, it’s not really helping you that much. You’re putting all this energy into what? Into improving what, exactly? When it seems to me like telling the truth actually is a competitive advantage, and can earn you certain advantages, is a place to spend energy on. The first thing is the inconsistency which I feel is just not a valuable trade-off.

And the second thing I think happens is fear. You’re on the phone with the potential customer, and you say you’re only one person, so they think, “Too small, not going to buy,” and they don’t. Or you’re afraid to be discovered in some way, or they’ll think that you personally are not worthy, or something. Just afraid of the consequences of whatever they may think or do when they discover the truth. And part of this is absolutely true, there is no doubt that there are people who will not buy from you if you’re person, or whatever other things are true about your company, there are people who will not go with us if we don’t have 24/7 support. But my contention is, number one, those people, if you fooled them, are not going to get whatever service they thought they were going to get and they’re not going to be happy in the long run. And in fact, you’ll waste a lot of time with them before they leave you, and I don’t think that’s actually very constructive or profitable. And the second thing is, again, your fear is largely unfounded because although those people exist, I think I’ve just shown you with those three examples and those other before it, how if you tackle that same fear, “Oh, yeah, we’re only one person, but…” Right?

If you tackle if head-on, “You’re right, I’m only one person, sometimes I’m busy and I don’t have time for you. Sometimes I’m traveling and I can’t answer the phone. Sometimes this, sometimes that, BUT! But.” See, now you get to say something else which other people cannot say. “But I’m a boutique shop. I have this very specific set of skills and I’m one of the few people on earth most suited to fix your particular problem.” Or something. Whatever the thing is that is that thing. I’ve showed you a couple of examples, you see the pattern, I find that the pattern almost always works. And they’re almost always ready to embrace whatever the thing is. In fact, I think the thing about our cancellation rate shows that not only are they okay with the limitations, but you literally earn forgiveness on whatever happens that was even unforeseen. I think that’s incredibly powerful and way more interesting, powerful, and good for your business in a profitability, revenue, and growth sense, than the little benefits you think you’re getting from telling lies. I also think that this is not limited to just certain industries and stuff. I mean we just went through, what, marketing on Twitter, large-scale international consumer whatever stuff, one guy in Italy doing one tool in a niche, high-end hosting servicey-type stuff, enterprise sales calls… Like, I think this is actually one of the few things that’s universal. And I think it’s universal because it’s a personal thing. It’s not about what business plan you have, or what industry you’re in, but as Paul likes to say- I keep referring to Paul [laughs]- but as Paul likes to say, like people, of course, are buying from people, a corporation is a financial thing, people buy from people, and this is a thing you do in relationships, isn’t it? Unless you’re just going after a one-night stand, being up-front and honest at the beginning is part of how you build a real, genuine relationship, and people, in reality, are willing to forgive a lot of things if you’re also genuine and so forth. I think it’s exactly the same, why wouldn’t it be the same? It’s still people.

And it’s not even just business. Howard Stern is by far the most successful person in the medium of radio, and he is asked of course all the time in interviews, “What makes you so successful? What makes you so ahead of everybody?” and he always says that because he’s honest about what, and he tries to remove the filter between brain and mouth and all that. And that’s not what people hear. Because then they say, “Well, what about all those other shock jocks that do all the sort of offensive stuff? And how come the shock jocks aren’t as successful?” It’s because it’s not about the shock part. That’s actually not it, that’s not the interesting thing. The interesting thing is that everything that happens on the show is an honest reflection, it’s almost the first reality show. And that’s the interesting thing, and he tells everyone, and it doesn’t matter, because if you turn on the radio it’s going to be some shock jock with a voice like this, that’s not real, and they’re not listening. And they’re not doing it. And they’re not as successful as him. I think everywhere you look you see these kinds of things, and yet people don’t do it. Howard Stern says it, nobody listens. And people say on Twitter you should be honest. And then they’re not.

So, even though I’m saying this to this whole room, even though hopefully I’ve convinced you at least a little bit, and I’ve showed you data and I’ve showed you all these examples, I still think that almost nobody in this room actually has the stones to do it. I think that if you go back and go to your company page and you really try to tell the truth about it, I think if you go to the sales call, and you’re challenged with something difficult, I think probably you’ll wuss out and not do it, because it’s easier not to. And that’s why, for the few of you who do have what it takes to do this, and be honest, I think that you will have a massive competitive advantage that your competitors will not have, definitely that your large, entrenched competitors will not have. And I think that no matter how many times I say this, that it will still be true, and I don’t think this is one of those messages where everyone will do it and the playing field is level again, because everyone’s already saying, if you look, people are already saying to do this. And people, it’s just too hard for them to do. So let’s see if you have the stones to do it. Thanks. [clapping]

Jason Cohen

Jason has  built four software startups, both bootstrapped and funded, both alone and with co-founders. All of them grew to more than $1m annual revenue.He sold two, and currently serves as CTO of the fourth, WPEngine, with 380 employees headquartered in Austin, Texas.  More recently, he has also been an angel investor and was a founding member of Capital Factory, an Austin incubator and co-working space. He writes about software and startups at ASmartBear.

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