From MSP to SaaS for MSPs
May 16, 2019 in Interviews
Founder, Locklin Networks
Hello! Who are you and what business did you start?
I'm Reilly Chase. I'm a network/telecom engineer, programmer and hacker. I started my first IT service business, Locklin Networks, in 2014. In 2017 I transitioned away from project based work to focus only on building recurring revenue.
I experimented with several IT service related recurring revenue business models including managed IT, cloud PBX, and wireless internet service, but I actually ended up finding success after creating HostiFi, a Ubiquiti cloud hosting service for other, more established, MSPs. I was finally able to make the leap from my day job to full time on my business in January 2019.
Give us a sense of the size of the business
Today I have over 300 subscribers who pay between $19-$125/month for my products. In April 2019, monthly recurring revenue was $5,677, with gross revenue of $6,294. After expenses, profit was $4,152. HostiFi makes up the majority of the revenue, and has allowed me to work full time on the business. With no employees so far, I handle everything including product development, support, and marketing. I also raised seed funding from Earnest Capital, which has provided extra cash for me to continue building services for MSPs, as well as guidance from an incredible team of mentors.
What technologies or products is your business built with?
- Atera - RMM
- ConnectWise Control - For remote screen share and support
- Webroot - Antivirus
- Cloudberry - Backup software
- BackBlaze - Cheap storage for Cloudberry to backup to
- Yealink - VoIP phones
- FusionPBX - Open source, Multi-tenant PBX
- DigitalOcean - Cloud servers
- Ubiquiti - UniFi, UniFi Video, UNMS, UCRM
- Quickbooks - Accounting, invoicing
- Vultr - Cloud servers
- Cloudflare - DNS
- DigitalOcean Spaces - For backup storage
- Hubspot - Live chat on the website, but will be switching to Freshchat soon
- Ubiquiti - UniFi, UniFi Video, UNMS, UCRM
- Buffer - Single interface for posting to Twitter, Facebook, LinkedIn
- Tweetdeck - Helps keep track of dozens of Ubiquiti related hashtags and discussions on Twitter
- Zabbix - For server monitoring
- WordPress - Website platform, I will replace it with Laravel Spark soon
- WordPress EDD plugins - Handles Stripe integration, recurring payments
- Webmin/Virtualmin - Web Server management software
- Stripe - Handles payment processing on the website
- ChartMogul - SaaS analytics, super useful tool for tracking subscription related metrics
- Python - Scripts I wrote that handle all the work of installation, updates, cancellation, server management
How did you come up with the idea?
The first time I thought about starting my own MSP business was when I was 19 years old. I was working for a small MSP, Nova Voice & Data Systems, as a Cisco Network Engineer, running cables and configuring Cisco UC500 phone systems. I had that realization, that we all probably have at some point, that my boss was making $100-$150/hour for my time, but I was only paid $16/hour. He was a very nice guy however, and has been a longtime mentor to me. I wanted be like him someday!
In January 2018, a friend recommended that I read The Millionaire Fastlane by MJ DeMarco, the founder of Limos.com, and I couldn’t put it down. The book defined commonalities between business models which can lead to financial freedom, and how to build products that can scale rather than exchanging time for money. SaaS was mentioned as one of the best business models, so I started to research how to start a SaaS business.
I came across Tyler Tringas’ Micro-SaaS eBook, where I learned pretty much everything I know about how to start and grow a small SaaS business, and was inspired by his story. He built a tiny SaaS for Shopify store owners to be able to easily create an embeddable custom map of their store locations for their website. He bootstrapped the business from $0 to $480k/year sold it for an undisclosed 7 figure amount. While reading, I had no idea at the time that he would later start Earnest Capital and choose HostiFi as one of the first two investments a year later.
To come up with the idea for HostiFi, I followed the meat grinder approach from one of his blog posts. I wrote down niche SaaS ideas whenever I thought of one, and put it through a series of questions in my head like:
- “is this a viable business?”
- “are people already paying for it?”
- “am I the right person to start this business?”
- “is this idea simple enough to launch an MVP in 30 days?”
What was your personal situation like when starting the business?
When I founded Locklin Networks I was 21 years old, single, and renting a house with friends in southern California. I was working remotely for Presidio as a Collaboration Engineer, had a lot of free time between projects, and some disposable income.
One reason I was motivated to start my own MSP was because I didn’t see a career path forward that excited me. I knew that even if I worked and studied hard, my income was unlikely to ever 3x again as an engineer.
I felt that starting my own business was the solution, so I paid a designer to create a logo and a lawyer to setup the legal structure, but I quickly realized I didn’t know anything about business. Over the next few years, I was able to build up some of that knowledge by finding customers and working on small projects for them.
When I launched HostiFi in May 2018, I was 25 years old, dating my girlfriend Emily of 4 years, and renting an apartment in west Michigan. Although my personal life had changed, my day job was almost exactly the same. I was doing the same type of work, and making the same salary as a Solutions Analyst for Sentinel Technologies. My motivation to create a new career path for myself with better upside was the same, but this time I had built up a better understanding of business 101.
How did you go about putting together your offering?
When I was putting together my MSP offering, I researched it extensively. I found that Reddit was the best resource for me to find out pricing on vendors, reviews, and advice in general. Putting together an MSP offering was very difficult because I wanted to offer every IT service that a small business would need, but also still choose the best vendor for each solution.
I took notes on everything, and had spreadsheets of pricing from different vendors. To determine pricing for my own offering, I tried to find statistics on average pricing per device, as well as create my own guesses at average pricing based on what people were saying on Reddit. I wanted to do pricing based on the benefit to the customer instead of per device pricing, but it seemed intimidating to calculate it that way, so I started with per device pricing instead.I considered per user pricing as well, but felt the scope was too broad and might be tough to support.
I launched with UniFi hosting, and expanded to UNMS, UCRM, and UniFi Video over time as I received requests from customers. Initially I priced the UniFi servers at $15/month, and had shared server plans for $5 and $10/month. I set the price based on what I saw a competitor charging, but as I added more features and the service grew, I have increased the server pricing and added additional, higher level, plans. I also made the $5 and $10 plans free.
The hardest part wasn’t choosing what to start with, or how to price it though, it was the work involved in programming the MVP. I spent several months struggling to get the basic SaaS subscription sign up flow built with Django, a Python web framework. I was close to giving up, and had decided I wasn’t good enough at programming yet to be able to start a SaaS business, but a chance encounter with someone who was interested in what I was working on inspired me to give it one more try.
Instead of using Django, I ended up getting it working with a WordPress theme, some plugins which handled Stripe and recurring payment integration, and a bit of custom PHP code for the dashboard. Python scripts ran in the backend on cron jobs, continuously checking for new work to do: build a server, take backups, count devices, cancel a server, or other various actions that might indicated by the database.
How did you get the word out about your new business when you launched it?
I never really had the confidence in my MSP offering to go out and actively promote or sell it, so other than creating a website, I never advertised anywhere.
I didn't "launch" really, there was just a continual process of over engineering the offering, not implementing it, and then recreating it. While working on creating the perfect MSP offering, I did project based work which I mainly found through LinkedIn and Upwork, and small projects for other MSPs.
When I launched HostiFi, I had learned from my mistakes with Locklin Networks. I realized that in order to become a real business, HostiFi needed customers, not a continuously improved, never launched product.
I launched HostiFi in May 2018, even though there were still many more features I wanted to work on, and little bugs here and there that I wanted to fix.
To get the word out, I spammed every Ubiquiti related community that I could find online, and was quickly banned from just about all of them, resulting in zero sales. I learned a great lesson about how marketing works from that experience. No one is going to be excited to purchase something from an account created a day ago that makes its first post advertising to be the cheapest provider of XYZ. I then started to learn that marketing is not spamming, and about being the cheapest you can be, it’s about building a reputation as an expert by helping people for free, creating and sharing relevant, quality content, and consistently engaging with the community without pitching them all the time.
The only platform I found success with for getting the word out early on was Twitter. I started following Ubiquiti related hashtags, retweeted, liked, and followed people who were talking about Ubiquiti products. By engaging in discussions and being part of the Ubiquiti community, I began to form friendships. People could see I was a real person who was passionate about Ubiquiti stuff, so some trust was established, and people started to sign up for my service, tell others about it, and ask for my opinion on Ubiquiti related questions.
How did you acquire your first 10 customers?
Early on, I didn’t know anything about how to get customers, so I set up a website and waited. Eventually, a few customers did find me, not through my website, but on my personal LinkedIn profile.
Upwork was where I first began actively reaching out to customers. Getting the first job on Upwork was very hard because my account did not have any reputation yet, so I overcame that by applying to lots of jobs which were relevant to my skill set, bidding low, and just trying to be helpful and see what I could learn instead of worrying about how much money I was making for the time I was spending.
After some time, I completed a few jobs and had built up some positive feedback on my account, and I started to get inbound requests asking for me to apply to postings. After that, I started to become more selective with the jobs I applied to and accepted. I increased my rate, and started to focus on projects I liked best which were FreePBX, FusionPBX, and simple Python programs.
I wrote a post about how 0-10 customers here. Short summary: my first 10 customers came from Twitter and some of my less spammy Ubiquiti forum posts that weren't taken down by the mods.
How has the business changed since launch?
The business changed a lot over time. As I pursued different interests in IT I used the business as a tool to teach myself new skills. Whatever I was interested in at the time, I looked for side projects to grow the skills I wanted to develop. Early on it was Cisco VoIP, then FreePBX, FusionPBX, programming, and some of the last projects I did were penetration tests.
In the beginning, I had the idea that if I could learn how to do many things, I could then offer many services, which would allow me to get more work, and ultimately result in a bigger and better business. But in the end, I had moved closer and closer to the opposite thinking. How can I do less, better?
My first attempt at doing less, better was when I put together my MSP offering. I was still trying to do everything in IT that a small business would need, but I had at least narrowed it down to only use certain vendors for each service. That way I could become an expert at each of those rather than constantly learning how to use new products for every customer.
But as I was putting that together, I started to think about simplifying even further. Maybe I could become a specialist in one specific service like FusionPBX or IoT hacking? I realized that the more niche the specialization, the easier it is to brand, market, find customers, and turn a service into a repeatable, product-like process.
Unlike Locklin Networks, HostiFi’s purpose has remained the same: make Ubiquiti cloud hosting easy for people. Several new products were added, new features were built, and a free plan was launched, but the business and its purpose has remained exactly the same.
How do you acquire customers today?
I’ve stopped accepting new customers for Locklin Networks to focus on my SaaS businesses instead.
I don’t spend very much time on marketing or customer acquisition any more actually. I used to log in to Tweetdeck each day and catch up on all the latest Ubiquiti discussions on Twitter, following, liking, and retweeting, but now I mainly spend my time talking with existing customers, working on support, and improving the product. Surprisingly though, HostiFi is growing now more than ever.
A big part of that is the exponential effect of word-of-mouth. Now with over 700 active users, new customers are most commonly being referred by friends. Launching the free plan had a great benefit on word-of-mouth, because people loved it, they told others about it and so its helped spread the word quickly, which helped attract paid customers as well.
It appears Google search results are helping now too. It took about 6 months before HostiFi began to rank in Google, but today several web pages are ranking in the top few results for relevant search terms, without any effort or optimization my part.
I spend about $60/month for Google Adwords on related search terms as well, which brings in a few customers here and there.
I use Buffer to send updates out to Twitter, Facebook, and LinkedIn occasionally with Ubiquiti related posts, and updates about things I’m working on for HostiFi.
I send email updates to my 1,000+ newsletter subscribers using MailChimp once or twice per month, and cross promote my other products at the bottom of each email.
I think the key is consistency. I’ve been using these outlets to consistently remind people I’m still here, still doing this same thing everyday, with the same mission of making it easier for them to get started with Ubiquiti cloud hosting.
In the future, I plan to create more content, videos, and tutorials, and that will be my marketing strategy going forward, in addition to providing the best service I can for existing subscribers, which spins the word-of-mouth wheel.
Any books, training, or advice you would recommend?
I was never very successful as an MSP, so my advice probably doesn’t matter. I also never could find a good book or training on how to start an MSP, so I purchased small business guide best sellers that were too general to be much help. A big reason why I’ve wanted to start this community is to create those resources for other people who want to get started.
Unlike the lack of MSP business related resources, the tiny SaaS business community has tons of great stuff available that taught me just about everything I needed to know.
- Millionaire Fastlane by MJ DeMarco
- Micro-SaaS eBook by Tyler Tringas
- SaaSClub Podcast by Omer Khan
- Built to Sell by John Warrillow
- Make by Pieter Levels
- Company of One by Paul Jarvis
Where can readers find you if they have additional questions?
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