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Friday Entrepreneurs: Shannon Sofield, Payloadz

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In this week’s Friday Entrepreneurs: Shannon Sofield of Payloadz.com.

shannon_sofield.jpg

I absolutely LOVE Payloadz, Shannon’s service that lets you sell digital goods (like ebooks) online. In fact, let me tell you how I learned about it: When I released my Guide to Kicking Ass, I expected to sell about 100 copies, so I was planning to collect payment through Paypal and send the ebook manually. That lasted about 5 minutes, when I started selling way more copies than I thought I would.

About a day later, Shannon wrote me this exact email, which I’ve saved until now:

Ramit,
I’m a long time reader of your blog. I was surprised to see the method in which you were selling your eBook is not automated or protected. I think you should use our service, I will waive any fees. It protects your file and it ensures delivery of your product in an automated fashion and does not rely solely on email (which is unreliable). You can have it setup in your site in 5 minutes. Totally secure. I’ll even promote it heavily in our 100,000+ page view sites.

Check it: http://express.payloadz.com

Beautiful. He made his offer so simple that all I had to do was reply and say “Ok” and the rest was taken care of. How could I say no? That’s marketing.

Since then, I’ve sold over a thousand ebooks through Payloadz, and whenever I email Shannon about a bug or feature request, he gets back to me within the hour, making me love his service even more and want to spread the word.

In this interview, pay close attention to…

  • How he got the idea of starting Payloadz
  • How he keeps costs down (he’s the only fulltime employee!) and where he spends his time. This is the dream of a lot of iwillteachyoutoberich readers — to start something on your own and have it be profitable from the first week. However, it’s extremely difficult to do. Check out how Shannon does it.
  • What he says when his friends ask for advice on starting a company — including what makes him roll his eyes (ugh, me too).

The most important thing in this entire interview is Shannon’s point of how to get people to pay you. There are 2 no-brainer reasons you can charge people for your product: If you’re saving them money or making them more money.

Now check out how Shannon did it.

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What is Payloadz?

PayLoadz.com is a web-based service that allows anyone to market, sell, and distribute downloadable goods such as ebooks, music, video, software, or any other file that can be sent over the internet.

payloadz-screenshot

How did you get started?

I started a small web-development company and worked specifically with people integrating basic PayPal functionality. I had been working with PayPal directly for a few months where I was writing tutorials on how to use their Instant Payment Notification (IPN) feature to deliver software to people.

While leaving for a vacation to Florida, I realized that it could be made into a web-based service and the idea for the first Paypal-based service of this kind was born. Unfortunately, the vacation was ruined as I couldn’t think about anything but this idea. It was up and running within 48 hours of returning home.

Can’t someone just set up their own system (e.g., Paypal) and do this themselves?

When I launched, PayPal didn’t have any means in place to do what our service provided other than the IPN. Then they had an issue with the purchase download page where turned into a kind of “hack” as people were looking at the HTML code and going right to the download page.

Anyway, PayPal has come further with things like encrypted buttons, auto return, and Payment Data Transfer. All great tools and useful for digital goods, but each have their drawbacks.

How did you get your first users?

Surprisingly, the first few users were pretty high volume. It seems people have wanted to do this and simply needed the solution to become available. They were selling tens of thousands of goods on our service, and I can say it had some serious lack of functionality back then. We were the only game in town for the first year or so.

Now that you’re more mature, how has your marketing strategy changed?

After the initial period, the competition started coming up, so I had to establish a more formal marketing outline which includes a mix of PPC, SEO, a reseller program, and word of mouth.

Things I’m doing now are getting a PowerPoint and PDF deck together to bring to larger clients or VCs. I hadn’t had the need for this before, as the service couldn’t work for big software players due to integration issues. But with our recently released API, we can target those types of organizations so we needed something to bring to them instead of simply sending them to the site.

How do you make money?

We charge people a monthly fee to use the service if they sell more than $100 worth of goods in a month. The service is free if they don’t exceed sales of $100 each month. Beyond that, it breaks down to a service fee from around 5%-15% per month based on transaction value. I’m trying to focus on the concept of “we get paid, when they get paid”. So, if we provide a service that enables them to make money, it should be painless in converting them to paying customers.

We really have not differentiated the free account features from the paid account features in order to get people to upgrade. We could, and I think when the company moves to the next phase it will institute those kinds of things.

What were some of the biggest mistakes you made in growing your business?

I didn’t delegate. The business was profitable enough after its first few years where I could have started to send some of my duties elsewhere. As soon as you have enough headroom to spend to outsource, do it. For online businesses, I’d say the first one to look into is programmers. Definitely go overseas (Rent-a-coder, eLance). Be careful though, it is very hard to find good ones.

I think I’m still making one huge mistake, one that I’ve been making for some time. That is, thinking I can do it all on my own. The truth is, I could have been building a company ten times the size if I had brought people on to help. I had the fear of using the excess cash to bring someone in and then have things go south and the cash flow dry up. This hasn’t happened once in the entire business life, but paranoia is an entrepreneur’s daily companion.

Where are you in the lifecycle of your company?

Since that first month, maybe even the first week, the company has been profitable, but is still completely in bootstrap mode. To this day I am the only full time employee. I’m not hoarding money away though. I pay back into the company and reinvest almost everything.

I thought I could manage the company through the next phases, but am not sure now. I think there are people much better suited to do that kind of thing. If someone comes along and the offer is right, I can see moving on. However, the company is doing great and as long as I am here, I will continue to drive it forward as aggressively as possible.

What do you do on a day-to-day basis?

The first half of the day is really just reactive. I begin with email, about 155 of which will require my response. They are either tech support questions, larger customers, developers, or one of the many automated emails that keep me updated daily on the status of the system.

Once that is done I check Google News, Bloglines, Digg, and a few special interest sites. Another round of emails has me into the afternoon where I begin the proactive part of my day. It may be tweaking AdWords, brainstorming features, scouting prospective partners, or even doing some of the development myself.

If someone had an idea for a web business, what advice would you give to them?

A lot of my friends, very smart people, come to me each week with website ideas. Normally a quick Google returns ten companies already doing it and it ends there.

Other times I ask the “how will it make money?” question and they say “advertising” which gets an eye rolling from me. A lot of ideas are what I consider chicken and the egg scenario. To make money it needs users and content, but it doesn’t have either to start.

Then again, I’ve shot down many great ideas that have come up years later. A friend sat me down and explained a service that stored your bookmarks for you so you can access them anywhere. I slammed the idea (I don’t know the reason as it seems like the most logical thing ever to me now), but a few years later, del.icio.us sells to Yahoo!

One other concept that has stuck with me to evaluate a business idea is based on the financial service it provides to the user. To me, if someone makes money off your service, you can justify payment.

Is there anything else we should know about Payloadz?

We just sent out a press release which you can see here.

* * *

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34 Comments

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  1. Just to be clear, the ebooks are exposed to your 10K visitors or does this generate a link where you can promote your own book more easily

  2. Payloadz says :”For online businesses, I’d say the first one to look into is programmers. Definitely go overseas ”

    SCREW YOU BUDDY.

    I hope your business dries up like the middle class of America has, thanks to traitorous a-holes like you employing CFL (Cheap Foreign Labor) technology, and you wonder why it’s “very hard to find good ones”…

    I’ll return the favor by downloading the software/ebooks instead, after all, it’s all about saving money, eh?

  3. Jeremy Freelove Link to this comment

    AmericanCoder, where did you acquire the arrogance to believe that all programming work is “owned” by the tiny percentage of the world’s population living within an arbitrarily defined geographic region? Globalization is a trend that is not going to slow down, so its better to adjust our own attitudes and get used to the idea of overseas competition than to blame companies for following their own interests. After all, producers and consumers following their own best interests is what free market economics is all about.

  4. I’ve been waiting for a good opportunity to trim you from my RSS feed – this is it.

    I will teach you to be rich? No.

    You are lost in the circle jerk fantasy of web 2.0 and you have failed.

    Unsubscribed

  5. Thanks for the feature Ramit, and thank you for the comments- both positive and negative.

    My coders, whom I treasure, all have PhDs and are the most responsive, intelligent, and take as much pride as I have ever seen in anyone. I myself have been a coder since ’96 and have seen many types. Supply and demand are simple facts of nature. Either you embrace them, or you become a dinosaur. Eventually, market forces will drive up their prices overseas as well and US coders will be able to compete again on price again. Just as it was with cars and Japan. Just an opinion though…

  6. “Yay,” thanks for the thoughtful comment!

  7. Congrats on your success, Shannon! Thanks for the insights. It’s both encouraging and inspiring to read success stories like this.

    Ramit, glad to see you are reviving this column.

  8. Interesting. I’m about to launch a new e-book. Maybe this is worth trying.

  9. Shannon, congrats on ur startup and keeping the costs low. This is critical in any start-up.

    As you said, if we are defined by geography, then a coder should be pissed if the job went to another coder in Iowa :)

    American Coder: I assume you do not purchase goods made in China? and that citizens of other countries should stay away from Pizza Hut, starbucks etc that is thriving overseas? Do you know that Pepsi and Coke and KFC is well alive providing jobs to thousands in the US because of the foreign market? Its a cycle my boy…a cycle…which u would not understand perhaps.

  10. Let’s also be clear that there are serious risks by going overseas. While you get a great rate for great programmers, you have to deal with things like the Plague (seriously). Or their internet service dropping for a week, or like the tragedies that have hit India today with the bombings. These are all things that counter the cheap labor argument as the risks are quite serious. Since I am a programmer and the business is in bootstrap mode, I can handle the reigns if there is a serious issue with my team.
    Thanks again.

    Shannon

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