Growing a Time Tracking Software Startup to 14k MRR

Hubstaff's Baremetrics dashboard

The previous post in this series, Growing a remote startup to $11,500was a snapshot of Hubstaff (time tracking software) since inception and covered foundational level aspects of why we are where we are (positive and negative).

With this post I’m going to focus on the most significant growth factor of the business, why I believe that product quality is driving much of the growth Hubstaff is experiencing, and dive deep into some of the decisions we’ve made as a young company.

Over the years I’ve heard the founders of many successful companies say something like this… “Even though we were in the {insert whatever industry you like} business, we always viewed ourselves as a marketing company”. To me, this meant that they were investing in sales teams and getting the word out instead of investing in their product.

I think this marketing first-attitude can still succeed in some industries, and back in 2003 it may have applied to all industries. But now it’s 2014, and I think the rules have changed drastically (especially in software).

We decided to go big on product, not marketing…

Early in 2014 we decided to re-invest every dollar that we made back into the product. Hubstaff was at a point where the product was stable. We had enough features to support most client needs, but we still had a relatively low conversion rate from trials to paid users. We were getting about 15 new trial organizations signing up every day, but the daily paying customers were just trickling in (around 1.5 per day or 10% of trials started).

It felt like the main reason for this was that our software wasn’t truly impressing the trials that were signing up. It was serviceable, but serviceable was not good enough. It wasn’t extremely impressive from a design perspective and we were lacking some functionality that many clients were looking for.

The decision was all about ROI.

We decided that investing heavily in development would most likely have a higher return on investment than putting the money into external marketing. We felt the more we could improve our product, the more people would talk (free marketing and the leading method of customer acquisition currently), the happier our current clients would be, and we would be building an asset that would last for years to come.

We couldn’t have made this decision without already having some traction… I’m not advocating endlessly focusing on product without any proof of concept. For us, we not only had a proof of concept, but we felt that we were not fully taking advantage of the current signups that we were getting (our approximate 15 new organizations signing up per day was mostly driven by search and word-of-mouth traffic).

After focusing on development for the majority of 2014, we currently have more than 15 integrations available.

Hubstaff integrations

We also have an iOS app in development (super secret tech), payroll, weekly budgets, a public API, and much more that is about ready to roll out.

We’re proud of this… We spent most of 2014 building our team and technology, but in return we are getting a world class product that we believe is currently unrivaled in the marketplace. The investment has been substantial, but we believe the payoff will be growth. Here’s where we are at right now (Hubstaff revenue numbers are publicly provided by Baremetrics)…

Hubstaff revenue dashboard

In 2014 potential clients demand the best

Hubstaff time tracking interface

The process of a prospective client getting to know our software always starts with a test. Managers try the app and if they like what they experience then we’ve earned a potential client who gladly pays us for many months. If they don’t, they move on. We only have a few minutes (maybe even seconds) to impress and we need to impress on three levels.

  • Web application – First, we have to impress the client with our web functionality.
  • Desktop applications (Mac, Windows, Linux) – Second, they have to like our desktop timers.
  • Features available – Third, we have to provide all the features that are essential to their business.

The goal of investing in our product revolved around improving the user experience of Hubstaff on each of these three levels. Here’s what we’ve done, how we’ve done it, how much it cost, and how long it took.

  • Web App / Server – We spent around 12 months and $35,000 developing tasks and integrations. This extends our application and makes it more usable, but it also makes the apps we are integrating with more useful. We believe that this will be a marketing advantage.
  • Desktop Apps – We spent 6 months and around $30,000 redesigning the desktop apps. We decided to design our apps natively for the operating system they are meant to run on. This means that the Mac desktop version of Hubstaff looks like a native Mac app, because it is. The same goes for the Windows and Linux versions of Hubstaff. All of our apps are written from scratch using C++. It’s more expensive to build this way, but will produce a better user experience.
  • Available Features – We’ve added countless other features and improvements to the UI and functionality along the way. This includes things like budgets, wizards, payroll improvements, and more.

The fact that clients are now demanding the best products possible is not a bad thing. It just means you actually have to give it to them, and not just act like you are.

If we can provide a better product in each of the three areas above, here’s what the estimated impact will be:

Conversion funnel

The above is only a 5% increase in each step of the funnel (if before 80% passed onto the next step, after the changes 85% will).

As you can see this increases the overall number of free trials that become paying clients from 10% to 14% (40% increase). With marketing alone those kind of gains are tough to get.

That’s not even the whole story…

We also expect that by building a better product, the viral coefficient will also increase. This means we’ll also add more people to the top of the funnel. Instead of adding 100 people to the top of the funnel, like in the example above, we could add 102. The business will continue to grow all because of a better product that makes more people spread the word.

We’re happy with our decision to invest in product

Would all of this money have been better spent on driving more visitors or improving the marketing funnels? I don’t think so, because we would have been spending money on a poorly converting funnel. Investing in the product has required a big commitment of money and time (and we’re not done), but we are building a castle that we are constructing brick by brick. It won’t be easy to penetrate and it’s not reliant on any particular platform.

More than anything, we’ve built a product that we are proud of and it’s making a real impact for our clients and on their businesses, which makes it fun to get out of bed in the morning.

Even though I’ve downplayed marketing throughout this entire post we have uncovered several effective ways to spread the word about the product. That’s what the next post in the series will be about.