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.

* * *

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.

* * *

Want to be a Friday Entrepreneur? See the benefits of being featured, then submit yourself as a Friday Entrepreneur.

Check out Payloadz, read other Friday Entrepreneurs, sign up for my newsletter.

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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. 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

  11. great article and I will be adding you to my reader. For someone relatively new to web businesses and marketing, there are some great pointers here.

  12. Wow, great post, great service. I have had a look at it and it looks so simple and easy to use. I have been using Clickbank to cell my items (and other people’s items) but this is done through paypal which is a much better and easier payment option for me that through check.
    Thanks for the post and the interview

  13. Payloadz is a great site, especially if you just testing the waters, and the revenue model is brilliant. However, I have been having problems with the WYSIWYG editor, and never seem to be able to get the “sales letter” right when transferring from Word. The point is not the editor is not working properly, but when you outsource and delegate most everything, ideas and improvements are limited to the team you are working with. And if you have none like Shannon, you have develop systems to keep ideas fresh so you can evolve with the markets. All the best…

  14. anotherguy: if you would like to compare unskilled workers at Pizza Hut and KFC to professional software engineers with years of experience on top of years in College and grad school, go ahead. You seriously expect a US SW engineer to compete against guys OS who are happy to get $5 an hour? Please enlighten me with how you reconcile the high (and rising) cost of college, living costs and the general level of safety and law here in the US and show me how we compete against a sweat shop in Bangalore. Free World Market, yeah sure, as soon as we have a level playing field. It’s called the Race to the Bottom. and and by the way, I’m not your “boy”, I was in the military serving for a decade before the last 15 years in IT.

    and Jeremy Freelove: wow, just think, if you had slaves you’d make even better profits.

    You mentioned Geography (and other states)…I NEVER said it was only a geographical issuelike one US state against another; its one NATION with its standard (and associated costs) of living against a third world country. It’s a cycle all right, one that leads to the US having a dead middle-class and hopefully no customers for your products.

  15. I’m in computer engineering and have thought about this “overseas” issue a bit. I’m not sure where everyone lives, but here in Florida, we have jobs thrown at us like crazy. My friend with a Masters in computer engineering had many people wanting to hire him, and he wasn’t even trying hard. I’m not worried about finding work at all. I don’t even have a degree yet and have a good job in my field. There are many types of programming where you need a local team to meet and get the job done. Other types can be done cheaply with overseas help.

    The Internet is a global market. If one can’t accept this, then one should seek out a different career. Perhaps something in the medical field.

  16. Great article, Ramit. Keep up the great posts. Thanks!!

  17. @AmericanCoder: I am a front-end coder/designer and I have never worried about my job being sent overseas. The key is to offer a product that people can’t easily outsource (in my case that is good customer service, better than average design, and excellent communication).

    If your skills are so easily transferable that anyone can do the work you do, that is your fault. Build your own product and sell it, write a book about something you’re an expert in – if you’re not an expert, become one.

    You could also go the route of setting up a company that manages programming projects and outsources the work overseas so that other people don’t have to deal with the actual people/project management that goes along with outsourcing, and since you know how to program, you will be able to make sure they are doing the programming correctly and meeting standards.

    Complaining about an unstoppable trend isn’t going to solve anything. Come up with a new opportunity that is presented by the trend.

  18. Supply and demand govern the way that people do business. This economic truth is inherently entwined with the American political system. If you feel this system is flawed, complain constructively. Write to your congress representatives and tell them how you feel about the current state of free trade economics. Intelligent arguments presented to the correct parties will get you much farther than banal attacks as an anonymous internet commenter. If you truly feel as strongly as you’ve conveyed here, then become politically active and do something to change it.

    I liked this post. Thanks Ramit and Shannon!

  19. @AmericanCoder The problem is that there aren’t enough ‘sweatshops’ in developing countries. An additional facility employs more people in developing countries, provides cheaper labor for American companies, and allows for cheaper products for consumers in the USA. Win-win-win!

    Stop trying to sweep back the ocean, and learn to surf!

  20. I’m also a programmer employed in the US, and I’ve had both the privilege and the horror of working with overseas resources. It does make it very hard to compete on a global scale for freelance work, but it’s the way things work. Frankly, the market is starting to be tapped out even globally for the real skilled developers who can really understand and solve a problem. There are many people who just throw (bad) code at a problem till something sticks, never mind making sure it’s a new solution or even a good one. You find folks like this no matter where in the world you get people from, the US included.

    My company gets a great deal of people in from India, and the early ones on board were fantastic. Today, they’re marginal and often very difficult to communicate with. This same process is now repeating in China, and Brazil.

    If you’re good at what you do, you’ll still have no problem at all. If you’re not, the only advantage you’ve got over global folks is language and location. I don’t like to say it, but that’s the facts these days.

  21. AC, when a company has a brand new idea and launches a successful product from this idea, they typically have relatively high profits for the initial period in which they are basically monopolists. After some period of time, other producers will start entering the scene and the competition will drive the price down until returns are merely adequate.

    This is what is happening with the United States and digital technology. Being among the most progressive nations in the sector has allowed us to reap the profits for quite some time. Recently, this supremacy has begun to be challenged as a result of the very high wages that a skilled professional could earn. You have yet to offer a rationale as to why Americans inherently deserve the monopolists’ power if not granted by the natural laws of supply and demand.

    Furthermore, you insist that this is a national issue, pitting one country against another. Why is this distinction so important to you? The economy of Missouri is vastly different from that in California. The economy of Los Angeles is different from that of Sacramento. And my neighbor across the street faces different challenges than my family does. Why should we collectivize to the national unit? I certainly feel better competing on my own merits and realize that global competition brings costs down in a manner that more than offsets the effect of converging wages.

    I appreciate your service for the United States, but don’t be brainwashed into thinking it should be the ultimate arbiter of human wealth. Let it all be decided by the aggregation of billions of individual transactions.

  22. Free markets move our world ahead. Geography is irrelevant. Competition is good. Being competitive with your talents is mandatory. Let’s focus on building the world — to do that, we can’t have barriers. Work with the global economy.

  23. I’m intrigued, but I can do the same thing at ejunkie.com for $5.00. Why should I go through payloadz with higher fees when I can do the same for $5.00 total?

    I’m really close to picking a service for my ebook I’m almost finished writing, and I need some help deciding. I’m not trying to be an a-hole. Thanks for any help anyone may have.

  24. Pat, EJ is a great service. I am good friends now with the founder Robin K. Our services are very similar. I would say if you are selling tangible goods as well and that is the bulk of your sales, then their service may fit better. The one position we take is that we try to help market our seller’s products as much as possible using many different techniques that often are unknown or tedious to new sellers online. This includes, PPC, RSS, directory, SEO, and paid placements for our seller’s products. We also differentiate in our storage needs and test accounts. Best of luck.

  25. Shannon,
    For the question – “How did you get your first users?”, you didn’t really answer the question. You just mentioned that there were customers who needed that. But I didn’t understand how did you reach to them? Did you know them before? Or did you use PR stunt? Or what else?

    Your insights will be very useful.

    Thanks,
    Aditya

  26. As far as first users-
    I was a member of a few developer forums where I posted regularly. I did a low key post at each of them. It is tough to balance the line between announcing your product and spamming. It was received positively for the most part. PayPerClick was the first real ad placements. An affiliate/reseller system would have been a big help I think- as long as it is generous. At least provide a set of links and buttons for people to add to their site. you’d be surprised how many people will just link to you if they like your service without any incentive needed. I also had a small email newsletter from my earlier development gigs, so I sent an email to that list as well as a few key contacts in my email address book- directly asking for help promoting the service. They were individualized emails with specific action items which I wanted from them (“Hey, I was hoping you could give me rotation in your top banner ad on your site”). I didn’t have any big release when the service was released.

  27. Shannon,

    Thanks for your response. It sounds like you and Robin have some friendly competition with each other, and that’s good for everybody, kind of like how you see two gas stations right across the street from each other.

    I’ll have to do some more research, but again, thank you for your response and honesty. Best of luck to you as well.

  28. Benjamin; It’s even worse in pharmaceuticals; The most highly-regulated industry in the US — not the world — where outsourcing is reducing production costs in the short-term at the clear risk of creating drugs which are toxic to patients, (i,e heparin from China). Why? The FDA and EMEA can’t be everywhere, all the time, testing every chemical, health care product or food source. They have to prioritize, even after that huge hiring binge of a few months ago. Meanwhile, the oblivious Andy’s will blather-on saying we must remove barriers to have a better world never imagining having a better world could be done with some small level of forethought. Economically speaking, after vivid events i,e multiple deaths and physical injury, we may see tougher quality control internationally, but higher costs, which is likely to lead to a return of jobs to the US “until they get it right”. After all, it took the west a long time. Meanwhile, just don’t get sick.
    Ramit, sorry to be so down. Keep up the good work. Yes, I also need a new suit, but mine will probably be imported to the US instead of direct-ordered.

  29. What E-Junkie provides (and PayLoadz does not) is really good customer service. I’ve been with them for about six months, and haven’t had a single customer complaint. My emails to their customer support are always answered quickly, and any issues behind the scenes are dealt with promptly. Contrast that with the rude and haphazard service Mr. Sofield provided my company—well, there’s no comparing the two, really.

  30. I agree with Mary only I am a lot more angry at Payloadz,
    I have been using Payloadz for a number of years and they used to be a great service however in recent months that has changed. The price of their service has always been high, but it recently DOUBLED. I have had several replies from their support that were not only WRONG but ARROGANT TOO!

    It Culminated in them SHUTTING OFF MY SERVICE on a failed credit card charge but then they DOUBLED THE PRICE. They offer a free month if I “UPGRADE” (Same price that I was paying with one half the download limit) But their site CHARGES FULL PRICE when you try to order. Or I could get the download capacity that I HAD for only DOUBLE WHAT I WAS PAYING BEFORE. When They got my complaint their responce was “I’m sorry to see you go.”

    Then I got an email supposedly from Shannon Sofield saying “we want you back, come back and we will give you 40% off ” (after they doubled the price) Am I supposed to be excited by this offer? OOOH If I come back they will only charge me 10% more than I was already paying and I only get ONE FRIGGIN’ HALF OF THE CAPACITY THAT I HAD BEFORE? WHAT KIND OF IDIOT DO THEY THINK THAT I AM? KICK ME AGAIN ONLY CHARGE ME MORE THIS TIME?

    I won’t tollerate the obnoxious attitude that I recieved from EACH AND EVERY support email.

    HEY EVERYONE YOU CAN GET BETTER SERVICE FOR FREE FROM http://WWW.ORONJO.COM FOR FREE

  31. Well I just signed up for E-Junkie for my downloads and it looks like I will be saving over $100 per month and they don’t have any download bandwidth restrictions. If I had it to do over again I would NEVER consider payloadz. If your download count gous over your limit then they shut you off and make you pay double to get back on. They penalize you for success. Go with Shannon Sofields and you will learn how to make Shannon Sofield rich.

    I have a bunch of previous website customers that I am going to switch over to E-Junkie FOR FREE AND I WILL NEVER RECOMEND PAYLOADZ TO ANYONE ELSE EVER

  32. Why would anyone want to do business with Shannon Sofield, formerly of SuperFreaker.com whose poor programming and lack of SQL Injection protection cost thousands of companies a lot of time and money to first correct and then cleanup his product’s inherent mistakes. In our opinion, he had to learn of his product’s vulnerability of the SQL Injection exploit but clearly chose not to contact his paying customers with, at the very least, a warning if not a full remedy. A now he wants to teach us how to be rich? Sorry but I’d rather live moderately and be able to sleep with a clear conscious each night.

    Want an example? Search no further than Google with the phrase: “Upublisher Exploit” and you’ll find a plethora of reasons to be cautious.
    http://www.google.com/search?hl=en&q=upublisher+exploit

  33. Just one question to those people from the developed countries who think it’s fine and dandy that companies based in those countries outsource jobs to cheap foreign labor markets:

    Who’s pocket are you in? Just wondering.

  34. Shannon,

    While I really love your service, I am having such a hard time getting my pay buttons to work. I really need to get these sites up and running so I can make money and so you can too. Can you help me?