How We Achieved $1M ARR in Six Months

On 25 January 2017, we launched Setapp. In six months, we had already achieved $1 million ARR (Annual Recurring Revenue), reaching over $4 million now, November, 2019.

Revenue didn't start rolling in immediately. Everyone gets a free trial, which means it was another month after the launch before we started generating any revenue from new customers. To go from a standing start to over $1 million in 6 months is, as most in the startup community would agree, a positive sign that we’re offering a service that customers around the world want.

It has not been easy.
Not that we imagined it was going to be easy.
Growth takes time, patience and consistent effort.

As anyone who's done a similar journey knows, generating a healthy revenue from a fast growing customer-base is far from plain sailing.

Growth brings its own challenges. Achieving this sort of growth in a relatively short space of time - only 6 months - is equally challenging.

We have learned A LOT from this journey, so we wanted to share with you 8 of the most valuable lessons. Hopefully, if you’re a founder, entrepreneur, working for a startup, or want to launch a new app into the world, these lessons, from practical, hard-won experience, will prove useful.

8 Lessons From Generating Over $1M ARR in 6 Months

For anyone in a hurry, here is a list of the lessons we cover in this article:

1. Make a Product Launch EXCLUSIVE
2. Work with Innovators and Early Adopters First, every time. No exceptions
3. Build a community before aiming for revenue
4. Winning new customers is only half the battle
5. Not all metrics carry the same importance
6. Create a referral program
7. Decide when to go global
8. Segment packages around customer needs

So, you want to learn how we did it?

Lesson 1: Make a Product Launch EXCLUSIVE

From 1920 until 1933, during Prohibition, buying alcohol in America was illegal.

Not that stopped anyone from buying, drinking and selling liquor, spirits, wine or beer. You name it, Americans drank it in great quantities during that period.

In some places, the local cops didn't care. They looked the other way. However, in other cities, mayors and police chiefs had to take action; especially New York, Boston, and Chicago, drinking socially became an exclusive activity. You had to know the right people, right places, and know how to gain access to secret underground speakeasies. Bars and clubs, usually hidden, in the basements of bars, restaurants, shops, sometimes even churches. Once alcohol was legal again, drinking was no longer an exclusive activity.

In recent years, consumer demand for new and exciting dining and drinking experiences, especially in big cities, such as New York and London, has brought the speakeasy concept back in fashion. You can walk into phone booths in restaurants, speak an access code, or hand over a key, and find yourself buying cocktails in a 1920’s style bar.

People love exclusivity.

We love to feel part of something that not everyone knows about.

Humans are hardwired to find out what’s behind a locked door. There are hundreds of academic and consumer research studies that marketing professionals can reference that demonstrates the need to create demand through exclusivity appeal.

So instead of shouting our marketing from the rooftops and tell everyone how Setapp was going to “revolutionize the way people use software”, or some other marketing buzzword bingo style slogan, we decided to take a different approach. Instead of blasting every single marketing channel with our content, adverts and other thoughts, we took a gradual, steady approach.

In practice, that meant rolling out a three-stage go-to-market strategy, starting with a closed, then invite-only beta. Emphasis on exclusivity, which in turn, created opportunities that accelerated our growth faster than if we had taken a different approach.

Our three stage Go-to-Market Strategy

Closed Beta

Target audience: journalists, editors, bloggers, vloggers, and industry influencers.

Beta is a pretty well understood and logical milestone when launching a product.

Give people access to a new product, get feedback, find out how to make improvements and then launch a new version with improvements and new features. Setapp is the most ambitious project we have launched at MacPaw, where we create great products for Mac customers, so we are experienced at managing the beta phase of product development.

This, however, was different. We launched an exclusive “Beta before Beta”, with a product that was as near to perfect as we could make it. Instead of reaching out to people on Twitter, Product Hunt and other social networks, we kept this one exclusive.

We crafted unique pitches to a list of over 1000 journalists, editors, bloggers, vloggers, and industry influencers. It took time. It hard graft and hustle, but with determination and intros from those we initially contacted, we had a great group of people giving Setapp a go. This was all done under a media embargo, since we didn't want anything releasing early. If you want to do something similar, this is the approach we took:

• Put effort into your pitch. Make it unique. Ours included the following simple but effective core message: “we are revolutionizing the Mac market, you are invited to be on one the first to try and share your feedback.”
• Don’t blast a mailing list with the same message. Personalize the message so that those receiving them want to open them, want to click on your links and join in your beta before beta.
• Treat this phase the same as other marketing campaigns. Don't expect an immediate response from the first message, have follow-up emails and monitor whether or not someone has downloaded your product, started using it. With email and app data, you should be able to follow-up with a tailored message, instead of the usual: “I just wanted to touch base.”

For us, the key achievement was giving those who could/would (we hoped!) tell others about our product a decent amount of time to experience it long before the public launch.

Invite-only Beta

Target audience: tech enthusiasts, early adopters, influencers & journalists/bloggers.

The next phase started sooner than we expected.

A few journalists and bloggers, eager to write about us and the revolution about to take the Mac app market by storm, published some articles. Embargo was over. Early adopters started to hear about us for the first time, which is when we started seeing “Setapp” as a keyword in Google Analytics traffic sources - people had started searching specifically for us (an awesome feeling, btw!) - and awareness was growing.

Now the floodgates were open, almost everyone in the private beta started blogging, vlogging and tweeting about us. We didn't rush to public release, however. We kept beta private, maintaining an exclusivity that proved to be an invaluable growth engine. Pitching to the press and bloggers became easier now, since they were already aware of the product, showing that we were achieving brand name recognition and awareness.

On the website, we gave early adopters the option to subscribe to a mailing list and gain early access if they promoted the product: Tweeted, shared on social media, mentioned us online or in blogs. We also gave bloggers and journalists between 50 and 100 invite-only beta accounts which further accelerated the viral loop, generating more inbound traffic, social mentions and email subscribers on a daily basis.

One risk, at this stage, is slowing down the user experience. If someone wants something - such as to get on a mailing list or a private beta invite - you need to create a seemingly frictionless user flow. Don't make it hard for early adopters. They are often willing to talk about new products, services and apps, providing you look after them. Early adopters are awesome. Alongside reviews and promoting you to their audience, they will always give you honest feedback, feature requests and actively contribute to a product roadmap, which in the long run, helps everyone.

Public Release

Target audience: Anyone, anywhere in the world with a Mac

The big day was finally here.

It was time to push the button on the public, worldwide release of Setapp.

Despite the early success in the first two stages, we were all a little nervous. This was the biggest launch we had ever done. We wanted it to go smoothly, as much for our customers and fans as ourselves. A lot of work had gone into the first two phases. Now it was time to release the product to everyone, with a launch date set for 25 January 2017.

On that day, anyone could create an account with a 7-day free trial.

Getting press attention was easier now that we had a growing user-base who already loved the product, which is essential if you want to grow at an accelerated rate. You need to have a product that delivers on expectations, delights users and creates value. Without this, achieving viral growth is a lot harder, if not impossible.

Our main mistakes (from the pre-release and launch phases):

Based on current revenue figures, you could say the strategy worked. We achieved viral growth early on and had kept growing. However, not everything went as planned and were we to do this again; there are some things that would be done differently. If we could, we would:

Ensure the Invite-only Beta phase was longer.

It was a little over a month, which may sound like enough time, but when you think that 50 days is only 3 development sprints, it was not really enough time. You should also expect, anticipate, that pre-launch, private and invite-only beta activities are going to take longer than planned. Reaching out to thousands of busy people while implementing other marketing activities is time-consuming, requires planning and as many resources as you can throw at the challenge.

Get a better definition of the target audience.

We had figured out product - market fit and spent time interviewing potential customers, but we could have spent more time pre-launch understanding the audience and validating hypotheses, which is something that emerged during the beta stages and after the launch.

Lesson 2: Work with Innovators and Early Adopters First, Every Time. No exceptions

Always, always, for the sake of your company, team and budget, keep the product adoption lifecycle at the front of your mind when scaling and growing.

One of the most painful ways a startup can die is through spending more than it can afford to scale too quickly, only to end up with money running out the building like water and the wrong customers, who don't stay for long enough to generate a meaningful return on investment (ROI).

We rushed things, jumped the gun, and paid the price. It was an expensive lesson for everyone. But you can also understand how it happens and why so many companies scaling end up with crazy burn rates. Things were going well. Customers loved the product. Hundreds of bloggers, journalists and influencers were writing about us every day, users were - and still are - happy, and traffic continued to grow.

It was exciting.

It wasn’t just the emotional relief of seeing a plan we had worked hard on coming to fruition. The metrics, the data, supported the assumption that now was the time to scale.

So, we thought, why not: Let's dial this growth up, let's get Setapp out to a much wider audience!

We dived into marketing like crazy. We went from organic and gradual to promoted and paid (alongside organic activity) overnight. We bought tons of traffic. We produced massive video campaigns, bought prompted ads and posts on social networks and paid for email blasts. We were spending money like they were going to stop printing it. This was working on the assumption that spending loads up front would generate tons of profit down the road.

Pretty quickly, we were spending $3750.00 to acquire 1 paying customer (customer acquisition costs).

We charge $10 per month for a subscription.

We are working on the model that subscribers will stay with Setapp for 21 months.

That gives us a customer lifetime value (CLTV) of $210.00

Meaning we were making an eye-watering loss of $3540.00 per customer.

In the end, the CLTV to CAC ratio was beyond scary. It was time to scale back. Think about things. Slow down. Stop.

We stopped, thankfully. We put a halt to everything, took some time out to think, then went back to the drawing board. We scrapped the flawed assumption that took us down this road. We started to do what had worked so well for us during the beta phases. Focus on the users, the customers. Think about early adopters. Appeal to what they need and want.

We spent time designing a value proposition canvas, identifying buyer personas and then creating marketing that would appeal to them.

With that done, it saved us a lot of time and budget. Costs were under control. Growth continued at a sensible pace.

Lesson 3: Build a community before aiming for revenue

Build a community before launching a new product.. Communities need to be active and engaged, interested in what you publish and should grow alongside your company.

Before Ryan Hoover launched Product Hunt, he wrote about startups, entrepreneurship, products, companies and apps he found interesting. He was published online, quoted on Twitter, hosted brunches and meetups, and created an email newsletter for other startup professionals, founders, investors and people in the community. This meant he had a small but growing and engaged community before launching Product Hunt. As he explains in this blog, those relationships, connections and online audience “became the seed of the Product Hunt community.”

Without this growing and engaged community, “Product Hunt would have been DOA.”

Buffer, the social media sharing app, took a similar approach. In six months, an MVP was launched, and they got a handful of paying customers piggybacking off communities other companies, blogs and media outlets created. Buffer Co-founder, Leo Widrich wrote over 150 guest blogs, which generated enough traffic and revenue for them to keep working on Buffer full-time. Now Buffer has a team of over 70 around the world and generates an ARR of $15.6 million, with an MRR of $1.3 million, according to the real-time Buffer Open dashboard.

Of course, not every company and product needs a community. Engaged fans, people who interact with your brand, read or watch and share what you publish, are essential if you want to own instead of renting your audience and traffic, which means paying less for customer acquisition than brands who pour money into advertising and promoted content. Here are a few ways you can start building an audience:

Know your customers. Get to know your audience, never ever think of them as metrics and data points. You’ve - hopefully - created something that people want and love, so, as much as possible, ensure new customers find you naturally, instead of spending a fortune on buying traffic and sponsored posts.

Craft and promote an authentic message. It doesn't matter if that message is a little rough around the edges. In the early days, no one expects flawless videos, carefully thought-out blogs, or unique GIFS that go viral. Just start talking. Reach out and start talking anyway you can (just don't spam people: that kills a community before it even gets off the ground).

Find smart ways to engage potential beta users, those you know are having a problem that your product/app solves, to find out more, gain feedback and invite to engage with you on social media, in email lists and blogs.

Build a “home” for your community. Every community needs an online home. Facebook, Slack, Twitter and Medium are some of the most popular platforms to establish a community when you want to reach out and connect with early adopters. In time, this community will change and grow as your product reaches a wider audience. However, in the first year, you will normally want to work with an online community of early adopters.

Creating content, engaging with the community and slowly spreading the word (in a non-spammy way), can encourage people to join who could become beta users and, in time, paying customers.

Our primary community is on Facebook. We created a Facebook Group for our most engaged customers, with over 2000 members in the group, and this keeps growing. Those are out super loyal users, advocates and promoters, and the best people to go to for feedback and insights that shape products. We invite them to test new features (it’s often the case that if we get negative feedback or a pushback from the community, we will stop building something, or change a feature).

We are delighted that they are always happy to answer questions, respond to surveys we send, and they are happy to help each other out, which is something our support team loves to see :-)

Setapp would not be the same without them.

Lesson 4: Winning new customers is only half the battle

It takes a lot of work, a lot of hustle, content, organic and promoted social and search campaigns to generate traffic and signups. So when you start seeing those sign-ups, it can feel like a victory. Signups are a great metric, but unless you are paying close attention to the conversion rate, signups are a vanity figure.

Now you need to show them the value of the product; you should aim to ensure a decent percentage (every company will have a different definition of what’s a successful conversion KPI, depending on revenue and profit targets) of those free trial customers convert into paying customers.

Take new users on a journey. From your end, this journey needs to be supported all the way. It will involve a combination of design (UX, UI), marketing/sales and customer support staff. New customers need to go from “this could be useful” to “aha!” through a short yet informative journey. Unless yours is a product people just “get” instantly, most new users need to walk the route of the product in action to understand the benefits.

As Reigan Combs, Lifecycle Marketing Lead at Asana, rightly points out: “New user onboarding starts before someone even enters your product. It’s collective of all the touchpoints that a user experiences— from the first brand impression to the first web visit, to their signup experience, to product setup and tours, to onboarding emails.”

Give trial users the tools to understand the product themselves. FAQs, product tours and videos are useful ways to educate and get them to wow through a short, logical journey.

Giving potential customers access without any self-serve tools or pointers is a quick way to lose them. You also need to make sure they can quickly contact customer support should they need help. And finally, engage them using emails and in-app messages. Content should be helpful, easy-to-digest, and informative, without spamming them or overloading inactive users.

One mistake that is worth avoiding, from our experience, is assuming what works for one segment of your audience will work for everyone. It really doesn’t! Unless your users all fit into the same profile, there will be some who need and will respond better to a tailored onboarding user flow. Give customers a user-experience and on-boarding process that is right for them, that fits with the needs of their demographic, age, location and other preferences.

As a result of realising that a tailored approach was needed, we soon witnessed improved conversion rates:

1. Visit to SignUp: from 7.11% to 12.71%
2. SignUp to Engaged User: from 32.24% to 54.35%
3. Engaged User to Paid User: from 8.35% to 14.81%

User acquisition costs dropped. More people converted at the end of the free trial period, and subsequently, our CLTV increased. Churn reduced. Revenue went up. There is no trick to this; simply make sure you are promoting the right aspects of a product's value to the right segment of customers during the most relevant and timely stage of the funnel for those users.

Lesson 5: Not all metrics carry the same importance

Here at Setapp, we measure everything.

We love data!

I’m not sure if there is a metric we aren't measuring. Every step in the marketing funnel is measured, monitored and turned into reports and graphs to track progress and make decisions. We are a little obsessed with data.

We have built a predictive analytical model which shows us, on day four after someone signs up for a free trial, how likely, or not; they are going to convert. This, in turn, ensures we can keep iterating and improving the user on-boarding experience and process accordingly.

Sounds perfect, right?

It is, except there was one HUGE problem that we failed to address. Across the company, we were swimming in a data paradise. Each team, however, had different metrics, different KPIs and for a while, we couldn't agree on key metrics. What was essential for the Product Owner (PO) and Product Marketing Manager (PMM) to measure wasn't important for stakeholders, other managers and the business owners.

We soon realized that having a clear, agreed upon, “North Star” would mean that everyone was on the same page and focusing efforts towards the same goals. After a couple of meetings, where we played business buzzword bingo, throwing around words like “CAC”, “CLTV”, “Revenue”, “Profit”, “Cost”, “ROI”, we decided on a clear vision on what really matters to everyone, which in turn influenced the product roadmap and marketing activities. For us, we decided on the following:

1. Month over month market share growth
The number of new paying customers every month, e.g. 10% month-on-month growth.

2. Month over month profit growth
With these metrics as a North Star, we could more easily assess the impact of new product features, marketing activities and stop buying traffic and new users for huge amounts. It enabled us to more easily align product development with marketing and the needs of managers and stakeholders.

Lesson 6: Create a referral program

Creating viral groups is how some of the world’s fastest-growing startups have achieved market dominance.

Dropbox is probably one of the most well-known examples. In 15 months, they went from 100,000 to 4 million users. Viral loops, an active and user-friendly referral program played an important role in the growth they achieved, and best of all, this is a free/low-cost marketing channel.

Andrew Chen, responsible for Rider Growth at Uber describes it this way: “Viral loop are the steps a user goes through between entering the site to inviting the next set of new users.”

Airbnb, Uber and dozens of other startups have viral loops built into their marketing channels. The concept is pretty simple. When people love a product or service, they tell others. When you give them an incentive for doing so, they’re far more likely to refer people to the same product or service they’re using.

For us, customers can invite friends and family to try Setapp. Every time someone signs up on another Mac with an invite link, the person who referred them gets a free month. You can invite up to 6 people, thereby getting 6 months free, saving $60. Once an account is created using the referral link, a free month will appear in the account of the person who referred a friend. It’s that simple, and we are happy to say, customers love it!

We are currently working on improving and enhancing the program, with the aim of launching the Setapp Referral Program 2.0 early in 2018.

We recommend creating a referral program for the following reasons:

• Acquire free users. Word of mouth is powerful and free!
• Your acquisition costs go down, which means, potentially, you could increase CAC knowing you will generate larger returns through referrals.
• There is no better way to achieve viral growth, at scale, while lowering costs and making your customers feel good - all at the same time. It’s a win, win, win scenario.

Lesson 7: Go global, when the time is right

Going global is an ambition most startups have. New markets. New audiences. New customers and hopefully, multiplying revenue streams. What works in one country should work in another, right?

Not always. You need to make sure new customers know you are speaking their language. In some cases, this means a simple translation from one language to the next. Making sure your message is conveyed in the voice of the target country.

1. Figuring out where to go?

In other cases, you need a higher level of translation, known as marketing transcreation. Instead of translating from one language to another, transcreation, makes copy and marketing messages more meaningful for a local audience. Something that makes sense in one country does not always have the same impact in another. It’s usually worth speaking to a professional translator before going local, especially when entering a completely new market, one that is unknown to anyone on your team.

To start with, our first target market was America. We have a track record of launching dozens of apps that appeal to a US audience, so it made sense to start where we already had traction. Once signups and conversions were strong in the US, we looked at web traffic data to determine where to go next. The top five, after the US were the UK, Germany, France, Australia and Canada. Although the Google Analytics data was an obvious indicator where to go next; and we also asked our 2000+ strong Facebook Group where they were from, which supported our decision to enter these new markets.

2. How to test a theory in a new market?

Google AdWords is the fastest way to start acquiring new customers; something we learned when we ramped up marketing campaign spending. We designed campaigns focused on Germany, France and Brazil to check the level of demand and in those non-english speaking markets.

Before investing more in localization, we delivered the same message to the new target markets as the English-speaking PPC campaigns. We translated keywords, ad copies, and landing pages, so they were mirroring the campaigns exactly.

These tests returned two really important conclusions:

1. The number of impression and clicks in the localized campaigns was 402% higher compared to English-speaking campaigns.

2. Our cost per signup was nearly 50% lower in the localized campaigns compared to English-speaking PPC campaigns.

We knew we had taken the right course of action, so moved forward with a local market ramp-up, starting in our top 10 target countries, except for China, which we decided to postpone it until we have a local partner who knew the country and region from a local perspective.

3. Impact of localization?

Scaling in new markets means ensuring everything - not just a local website or landing page - is translated into a new market. Everything should reflect a local approach, every touchpoint, marketing message, email and all of the copy and other information within and around a product should be translated by a native speaker into the relevant local language.

Some countries have several dominant languages, so make sure you are aware of those and cater to the needs of a diverse customer base.

Here is an example (image below) of what happened once we rolled forward with the global campaign, with a conversion funnel showing the percentage of web visitors who signed-up for free, then the percentage of those that engaged with the apps, followed by the number who converted into paying customers.

Lesson 8: Segment packages around customer needs

Not all customer needs are created equally. Even when your product does the same thing for everyone, solves the same problems and creates the same value, you are going to find that some customer segments except or want different packages, add-on services or price points.

Within a growing global audience for Setapp, we found two unique user-bases with different pricing needs. Here is how we adapted the standard model for a wider variety of requirements than we initially expected:

Annual Plan. Some customers didn’t want to remember that a payment of $10 was going to leave their accounts every month. We kept hearing, “It’s easier to pay annually.” So we created the Annual Plan, which proved popular, since the data showed that 14.53% of our customers switched immediately from monthly to annual. For any product-orientated company, this makes cashflow easier, allowing you to re-invest in customer acquisition, support and product development.

Student Plan. All around the world, students love and expect a bargain. We heard this request a lot of noticed that other software and tech companies do the same, so we quickly created and launched a Student/Education Discount Plan in August, with plenty of time to gear the marketing around the needs of students before a new academic year.

Summary and Takeaways

One month after Christmas Day we launched Setapp, after months of pre-launch campaigns. One month later, the revenue from paying customers started rolling in. Six months later, we had already achieved $1 million ARR, reaching over $1.4 million ARR in November 2017. Along the way, we learned nine valuable lessons. To recap, here they are:

Lesson 1: Make a Product Launch EXCLUSIVE. Reaching out to hundreds, then thousands of pre and private beta users proved essential. You need to work with influencers, bloggers, journalists and early adopters.

Lesson 2: Work with Innovators and Early Adopters First, every time. No exceptions. Don’t try and jump the chasm early. It won’t work. You need early adopters, not only to promote products they love to their audience, but to give you valuable feedback and feature ideas you may not have considered.

Lesson 3: Build a community before launching. Put your community first. Create content for them, put on events, engage them, show them you care. Only after that, focus on revenue, but never risk alienating your community/audience with too much marketing and advertising. Never lose sight of your audience.

Lesson 4: Winning new customers is only half the battle. Don’t spend more than you can afford winning new customers for too long. It’s not sustainable. Instead, make sure as many trial users convert to paying customers. Onboard new users, show them the value of the product. Use design, content, self-serve tools and customer support to take new customers from “this could be useful” to “aha!” through a short yet informative journey.

Lesson 5: Not all metrics carry the same importance. Decide on metrics and targets that are important to your whole team. Focus on getting results, not hitting pointless KPIs.

Lesson 6: Create a referral program. Once you've got a viral loop that works, a way of encouraging existing customers to refer others, you are on the path to sustainable growth.

Lesson 7: Decide when to go global. Going global means thinking local. Start with the data, then localize the message and every touch point a customer will encounter. Conversion rates will always be higher than attempting to go global without changing to language.

Lesson 8: Segment packages around customer needs. Find out what your customers want, then tailor packages accordingly.

I hope, if you are growing a company or launching a product, this article was a useful read.