Rick (00:01)
What up, Tyler? So are you a dad now? Were you a dad last time you recorded? I think you were. OK.

Tyler King (00:01)
Hey, hey, no I got, beat you, I beat you. I said hey first.

Yeah, yeah, we

skipped two weeks ago because I think you were busy and I was on parental leave so I had nothing to talk about. ⁓ But yeah, we talked two weeks before that. So I'm five weeks in to being a father and getting the hang of it. This is our first week on hard mode because Shelly's mom was staying with us and now she's gone, so.

Rick (00:17)
You

Is it different?

Tyler King (00:31)
It's definitely different, you can, I mean, even just having someone to hand the baby off to for three hours, anytime during the, it's like, I'm just gonna go catch up on sleep right now. ⁓ It's especially hard on Shelly. I'm back at work as of this week, last week. Last week I was back at work. So Shelly's on her own with the kid. Yeah, well, I only go into the office two days a week. ⁓ But those two, Wednesday and Thursday, yeah, it's just Shelly.

Rick (00:50)
You're just like, sorry, gotta go to work.

Ugh.

Tyler King (01:03)
What?

Rick (01:04)
Sounds like you need to go back to the five day in office work week. ⁓ Yep.

Tyler King (01:07)
Yeah, that's right. the company needs it. It's about productivity.

But I'm also taking Tuesdays off ⁓ every week. So I'm working remotely Monday and Friday, working in the office Wednesday and Thursday, and then I'm off on Tuesday, which man, a four day work week is nice. I get why people like it. Must be.

Rick (01:27)
I it is. Must be nice, must be nice, Tyler. How

many, ⁓ so when did you get back to work?

Tyler King (01:35)
last week. ⁓ So yeah, I took four weeks off and then ⁓ four weeks fully off and then yes, the fifth week I was back. So I guess we're entering the sixth week now.

Rick (01:37)
So you're a week and a half.

So did everything just fall apart while you were out or what's the update on the business?

Tyler King (01:53)
Yeah, no, you know, it's you almost want it to in the sense that you want to be needed. ⁓ I am deeply not needed. ⁓ Everything ran smoothly. I mean, I have done a lot of prep on ⁓ the main thing I do at the company. So actually, this is one of my topics that I don't even know if I have anything interesting to say, but like, I think my role is simplifying in a lot of ways. I do like CEO stuff, but the company's not it's not growing quickly. There's not

Rick (01:59)
Yeah.

You

Tyler King (02:22)
there's not really problems, like fires to put out. So my CEO role is pretty minimal. And then my individual contributor role is mostly like product management. And I just got ahead of the dev team. I made it, you know, got a bunch of designs ready, specked out the projects and handed it off to people. So ⁓ I couldn't be gone for three months because they wouldn't have stuff to work on. But being gone for one month and I planned a month and a half, two months ahead. ⁓

Rick (02:31)
Hmm.

Tyler King (02:51)
It was, they didn't need me at all. Yeah. Yeah. That's a good question. I'm so I'm just kind of, you know, anytime you come back from a extended vacation or anything like that, there's just a lot of stuff to catch up on. So I'm kind of just, I'm caught up now and I am kind of looking around like, yeah, what should I do next? ⁓ There's always some ongoing design product management stuff to do, but I don't know. think I.

Rick (02:53)
That's great. What are you doing now that you're back?

Tyler King (03:20)
I'm knocking on wood here. think things are calm enough. I need to like find a big project. maybe I should code? I don't know. I know this is a weird problem to have. ⁓ I kind of have more time than I expected. Yeah. How about you? What's going on with you? The opposite, I think.

Rick (03:31)
That's great.

Yeah, pretty much. ⁓ Well, I think we talked about Windfall's $65 million round the last podcast. That's like the dust is selling from that. We're getting back into our operating cadence with our new investors and our new board members. So that's really, really great. ⁓ And then we had, I think, a big win at like Appel and that we've rolled out some new product features, which also led to pricing and packaging updates.

⁓ that I think is giving JD much more confidence, ⁓ in pitching, ⁓ the, the, the, the small, the small end of the market, that don't offer health insurance. And so, ⁓ that's been fun. ⁓ and then, you know, one thing that was, that's been fun, from our last partner meeting, ⁓ is that we installed demo desk at your suggestion, ⁓ which is basically like a meeting recorder or.

Well, that's the feature that we're using. ⁓ It's like a Gong alternative, if you're familiar with Gong. But that's given me the ability to shadow asynchronously JD on calls. ⁓ And it's been really, really fun to watch those calls. I haven't watched enough yet. I've watched ⁓ two of his calls. ⁓ first of all, he does a great job. So one thing was just like, wow, OK. JD's really good.

Tyler King (05:00)
Which

is great and also every time you observe something you're like, I hope this sucks so there's just easy room for improvement here, right?

Rick (05:06)
It's

like you want both outcomes for different reasons. But he's doing a really good job. ⁓ the other thing that was a hidden benefit in the demo desk, which has led to me think, I have a lot of topics related to AI that are towards the end. I have at the end if we have time. But demo desk has some built-in AI features where after every call, this AI agent is sending him basically coaching on the call.

Tyler King (05:10)
Yeah.

Rick (05:35)
And the out-of-the-box coaching is like more more feedback and coaching that he's getting from anywhere and so he's getting immediate feedback on his calls on like, know Observable sort of things he can improve or he's doing well and I think that's helping him too So, I don't know that was just like a no-brainer win for a couple like what 40 bucks a month

Tyler King (05:41)
Yeah.

Yeah. And we use demo desk at less annoying, but I'm not like personally in it day to day with, the coaching stuff. Do you or he get to say like, here are the things I want to work on, hold me accountable to those goals, or is it just kind of generic? Like I'm an AI bot. Here's what I think.

Rick (06:11)
The version that we have are using is the out of the box version, but you do have the ability to customize what it's ⁓ paying attention to and the frameworks it's using and that kind of thing. But we haven't really dug into that. think going from zero, like when you're not doing anything to doing something and it's not like directionally like against what we're trying to do, like it's very useful. So I think there's a lot of leverage in what it's got out of the box, but yeah, you can customize it.

Tyler King (06:33)
Yeah, for sure.

Yeah, I think like for a company like, well, for both of our businesses actually, like spending time on the tooling on that type of tooling could be huge. Like it's great that it's already helpful. I like let's keep trying to get more and more and more out of demo desk, even if it costs twice as much.

Rick (06:46)
Yeah.

Yep. the other thing that I'm starting to realize is that one, think the features that you built with JD are leading to interesting conversations. One example of this, like, so for, this is a reminder, you've built, basically we had this login that let people, it was basically roster management for an employer and they could give like a single allowance per employee.

We transitioned all that, all the allowance portions to a structured benefit program that allows us to build communication documents and multiple benefit programs and different allowances structured within those benefit programs. And what that's allowing JD to do is sort of go, Hey, let's talk about how this would work. And then it's leading to conversations like, can I set this up for... We're about to roll out a cell phone allowance for our sales team. Could we use this for that? Yeah, exactly. You could use that for that. That's... Yes, it came up this week. So...

Tyler King (07:48)
Come on, party. Nice.

Nice.

Rick (07:51)
I think just having ⁓ something to demo, ⁓ which we could have built probably without coding, like in a lot of different ways, ⁓ is helping him have conversations and bring it to life. ⁓ The other thing that like what I'm realizing is so one of the big changes we made was we made our free offering much more attractive. Specifically, you can now like build one benefit program with limited functionality.

⁓ for free and add as many employees as you want to it. But if you want to add multiple benefit programs or you want to take advantage of some of our more like premium service options, you've got to upgrade to the paid version for a monthly fee. ⁓ And so I think like that's also allowed him to not get like, it's like you can't say no to this. ⁓ So I haven't had like, we've had one one sign up from that so far, but I don't think we've had enough pitches yet.

Tyler King (08:41)
Right, right.

Yeah, because this launched two weeks ago, right? Yeah.

Rick (08:50)
Two weeks ago. Yeah. And

so we migrated last week, think. ⁓ Right? Yeah. It was one of the... Yeah. So we migrated everyone last week and then I think there's a lot of opportunity just in the existing customer base to take these features out and say, what do you think about these new features? Like, you have other benefit programs? We can help with that.

Tyler King (08:55)
Okay, was one and a half weeks ago.

Yeah,

I've never done freemium before and I've always been really intrigued by it, but it is, it's interesting this kind of push and pull of like, should we be focusing on trying to get a bunch of free users or should we be focusing on trying to convert the free to paid? And I mean, the answer is both, but should JD be spending his time on our current customers or going out and seeing, is this a great new pitch to get more kind of top of funnel free users?

Rick (09:36)
have a topic on this right now and I'm happy. I would love to pivot to it. It's deep. so feel free to like go. have like more interesting that's talking about, like at windfall, I'm taking a, a ⁓ course called ⁓ by winning by design, which is like a, a SAS revenue architecture methodology, I think is what they call it. But anyway, they have like a lot of interesting models where they're applying some of the lean manufacturing six sigma concepts to SAS and like,

Tyler King (09:37)
Okay.

Yeah.

Rick (10:04)
rebuilding some of the traditional frameworks. One of the most... I posted some of this in our Slack channel, our partner Slack channel, but one of the most eye-opening charts for me is that if you can figure out how to retain customers and then expand customers, the long-term compounding of that versus acquisition over the lifetime of a business is exponentially more valuable than acquiring new customers. Now, you absolutely still need to acquire new customers. I'm not saying don't acquire more customers.

But like the main takeaway I have is that most businesses spend 80 % of their energy on acquiring new customers. If you look at board decks, like mind share, if you go into a CEO group, like we need new leads, we need new customers. Like that's what people talk about 80 % of the time. But like if you look at where 80%, 90 % of like the long-term growth comes, it's from retaining customers year over year at a high rate that makes up a bigger base and then also expanding from them. And I think that's probably playing out at less annoying CRM as well.

Tyler King (11:02)
yeah, and the exact reverse. One of my topics for this week is that we're not expanding, we are retracting. ⁓ Fewer users per account is the trend, yes. We don't need to dive into that right now, but yeah. The best SaaS businesses all say expansion revenue's huge. ⁓ I don't disagree with anything you've said. I do think some people overstate this where...

Rick (11:09)
Yeah.

No, no, so that's a huge problem.

Tyler King (11:30)
You can't, there's only so much water you can squeeze out of a rock. Like one single customer can't, like people model this out sometimes and they do the math and they're like, oh, if you can just get 10 % or 10 % is too high, but 2 % expansion revenue per month, bop, bop, bop, bop, don't need to add any new customers. And it's like, no, you do, like people will churn and you can't take a five person insurance agency that's paying you $50 a month and be like.

10 years from now they'll be paying us $100 million. Like, it's not gonna happen, you know?

Rick (12:00)
No, no,

no. And I think like, there's three, like the main concept at the high level is like there's acquisition, there's retention and there's expansion. And a lot of your retention efforts also lead to more acquisition if you do it right. Word of mouth, know, referrals, you know, just, you know, good vibes, case studies, that kind of stuff, reviews. And so I think there are diminishing returns based on your business model and what your

Tyler King (12:13)
Yeah, yeah.

Rick (12:28)
expansion opportunities are, what I see with our company in particular is that number one, the competition neglects their customers. And so that is a differentiator for us. And number two, there is significant expansion opportunities, both in terms of like, you know, seats, but also cross sell upsell of like life insurance and ⁓ property casualty and like there's like

Tyler King (12:37)
Yeah.

Rick (12:54)
Payroll, like all sorts of things that we can do ⁓ where we absolutely should have a very high retention rate because we are offering such a, you need to drop benefits, great, we have a product for that. ⁓ you need to add group health insurance, we have a product for that. Like really the only company we can't serve probably long term is the one that grows to 5,000 employees and outgrows us somewhere from between 100 and 500 employees. Okay.

That's after they've expanded significantly.

Tyler King (13:26)
For sure. Okay, and most companies don't grow, even if they grow to 100 or five, they don't grow to 5,000. Okay, a few thoughts here. One, I just wanna draw the parallel of like the pure SaaS version. You're kind of talking about two dimensions of expansion, seats and upsells. The SaaS version of this is like, you have multiple pricing tiers. Let's say it's $20 a month, $50 a month, 200 and enterprise or whatever. One dimension of expansion.

is you take them from the $20 to the $50 or the 50 to the 200. And then another dimension is you get more seats. So even if a customer has capped out, like they're not growing their seats, you can still, and yes, in the leg up health case, the extra tier, there aren't pricing tiers, but it's like, okay, you're already buying group insurance from us, also buy life insurance or whatever. Yeah.

Rick (14:06)
saw more stuff.

Yes. Yeah. Or

dental ⁓ or, I who knows what else, you know, but there's, definitely still diminishing returns. I think like going back to yours or a question, which is like, what should JD spend his time on? Like, I think that we should spend a higher percentage of our time serving our customers than we do acquiring new customers. Like I believe that we should bet on that. Yeah.

Tyler King (14:35)
Yeah. I want to be a little pedantic here though, cause I

think most people would not call. Okay. Sorry. Let me add some context here. A thing that's unique about LegUp Health is that there is a free software product sold to employers, which you just described. Even though it's free and that the employer does not pay anything. LegUp Health can become the agent of record selling individual insurance to the employees at the company. So LegUp Health makes money via insurance commissions, even though

No one's, no customer is directly paying us. Yes. So like, is this freemium? I think so, but it does blur the line of if this is freemium or not.

Rick (15:06)
We're making a subscription. Yeah.

It gets into kind of like a usage

based consumption model.

Tyler King (15:17)
Yeah, but the reason I'm mentioning this is ⁓ what a lot of people I've heard have said is like a common mistake is to think of free users as customers and to think of getting them to pay as expansion revenue. And that that's the wrong way to think about it. That free users are marketing leads and until they pay you, they're not a customer. They're just a lead. It's pedantic. And it's like at the end of the day, you're still trying to do the same thing, but like,

It's kind of, you going for expand, going for expansion revenue maybe should be thought of differently as trying to convert a lead, you know?

Rick (15:50)
Yeah, and that's fair. I think that's fair. Is a free employer account a customer? That's an interesting question. We are serving them. We've promised some sort of value and impact to them in exchange for them giving us their employee information and trusting us. So I view them as a customer. ⁓

Tyler King (16:14)
Yeah,

but you get what I'm saying that like, let's say you're running Slack or Notion and you have a free, the same thing's true, right? You've made a promise to them, you're trying to provide them with value, but like, the point is to get them to pull out their credit card and pay you something. ⁓

Rick (16:30)
or convert to an AR for us, make us the agent.

Tyler King (16:32)
Yeah, right.

Right, because this is an insurance services company as opposed to a SaaS company, like certain things are different for sure.

Rick (16:41)
Mm-hmm.

But your point I think is like that that's still acquisition.

Tyler King (16:45)
But like.

kind of, and I don't even know what, like, other people care about this a lot. And I've heard a lot of people, I think maybe the reason they care about this is they're like, should the marketing department do it or should the sales department do it? And in our case, that's mood because it's JD is the one doing it. Yeah. right. but yeah, anyway, and both, ⁓ the tension I'm talking about though exists, even if you do think of it all as, like let's say you're,

Rick (16:58)
Should the J or the D do it?

Tyler King (17:15)
I'm running a CRM company and we only have one tier, but let's say we have multiple tiers. Should we work on trying to make our bottom tier more appealing to get more, a broader base of customers, or should we work on making those upper tiers better to upsell our current customers? And the two are in tension with one another, right? The more features you hide behind the higher price tier, the harder it's going to be to get those new customers that are coming in at the low tier. ⁓

Rick (17:40)
Mm-hmm.

Tyler King (17:42)
So there, yeah, this is, love freemium, I love the idea of it, but I hate, like I, sorry I'm rambling here. I've looked at this for less than a year before. I think we've talked about it on the podcast before that like, I really would love to do a freemium tier, but I've looked through all our customer base and it's like, okay, what could the value metric be? Like you can't go above a certain number of users. Well, 70 % of our customers are one user. So it's like, boom, 70 % of our revenue goes away, or not revenue, but 70 % of our customers become free. That doesn't work. We would go out of business immediately. Put a contact limit on it.

Rick (18:03)
You

Tyler King (18:12)
Well, a huge number of our customers only have like 50 contacts. So that wouldn't do it. I can't find a way to limit the product where it's useful for some people without cannibalizing all of our revenue. Anyway, LegUp Health, we just took a step in the direction of making the free version more generous, which is great, but that comes at the expense of probably being harder to get paid.

Rick (18:28)
Mm-hmm.

Perhaps. ⁓ We did some analysis though before we made that decision and none of our customers that are paying us are paying us for the feature that we gave away. So we cannibalized nothing. ⁓ Yes. Yeah.

Tyler King (18:50)
Yeah, right, right, which is great. That's the dream. Now

that does assume then that the free users care about the thing that you offered for free, right? Which remains to be seen, I think.

Rick (19:01)
We believe they do because what they've told us in the past is, we're just going to do this by yourself.

Tyler King (19:07)
and you're not as worried that they might still do that.

Rick (19:10)
That's the challenge, right? Like how do we get them to like invest the energy and time to use our software, even though they're not costing money. It's like we have to demonstrate value, right? Like, ⁓ and so that's the, that is the, what we have to watch for the next 60 days. ⁓ I want to make one more point on retention versus expansion and acquisition. ⁓ I like what I'm starting to think about about like a health is like allocation of resources, allocation of time. I think like my bias,

at most companies I've worked at. like, even if I look at another company, I go straight to the, what's your lead gen? What's your conversion? Like I started at the top, you know, of the funnel. But it's really like, that's not for leg up health. Like most of our good vibes and growth comes from serving a customer really well. Like it's, it's, it's retaining them for another month or a year. Like we have one customer who lifetime, I think we looked at it for leg up benefits paid $15,000.

Tyler King (20:11)
for product that until pretty recently was a spreadsheet that just, they put their employee names on there and you said, thank you, now I know your employees, the end. That was the whole pro- well.

Rick (20:14)
spreadsheet.

Yeah, we did more than that. We did more than that. There's a lot of consulting.

⁓ But they're not quitting. And that's led to referrals. And it's a case study. anyway, think we need to be intentional about being OK with that's our marketing, that's our growth strategy. And if it doesn't work, let's go do something else.

Tyler King (20:25)
Right, there is a service component to it, yes.

Yeah, which is great for a bootstrapped company and terrible for a funded company because like a funded company once say, I take a dollar, I put it into a machine, I get $2 at the other side. What you're talking about, I'm a big believer in this is how less annoying serum has always grown, but you can't fuel the fire in the same way. Like you just have to be like, I'm gonna sit around waiting for good things to happen and just hoping that, but if you wanna double the speed of the good things happening, it's very difficult to do it with this strategy.

Rick (21:13)
You need to be able to pull,

you need to add new customers to do that. ⁓ So ⁓ the other thing I was gonna say is like related to funding companies, like this has started to last. Like the other thing that happens is oftentimes like expansion and retention are at odds with each other. If you try to push expansion before you've got control over retention, you can, yeah, you can get some upsells, but you might be neglecting customers who need some TLC that end up churning.

And what the big takeaway from Money By Design is, retention trumps expansion and acquisition over the long term. Having a customer payee for 10 years is much better than having a couple of customers stay for three years each and them all expanding a little bit ⁓ because they only lasted three years.

Tyler King (22:03)
I this seems like a, I totally agree. It seems like a specific version of like the broader concept here is just what are, like how much value are you leaving on the table for the customer? Right? Like your business creates X dollars of value. You can sell it for like X minus one and the customer gets $1 of value, which is a very hard thing to sell. Or you can sell it for 25 % of X and the customer is getting 75 % of the value. And what I'm hearing from you is like,

the more you try to expand, you're effectively trying to grab more and more of that margin, which hurts the value proposition. Is that fair to say? Okay.

Rick (22:36)
That's exactly right. ⁓

And like takes the energy and time away from the people who are serving customers. That may mean like, ⁓ we didn't recognize that this customer was unhealthy and we needed to go spend time to get them healthy. Or we did, but because there was pressure to go get upsells, we focused on other customers and retention goes down. ⁓ Yeah. ⁓

Tyler King (22:45)
Right.

Rick (23:06)
The last thing here on Winning by Design, I'm probably gonna have a recurring discussion around this, because it's a multi-module course. ⁓ The other thing that I think that we need to be more intentional about at LegUp related to our free version is that once you get into acquisition retention expansion, there's also the business model. There's upfront, paid upfront, there's some sort of subscription, and then there's consumption-based. ⁓

as you shift from paying upfront as the buyer to only paying if you get a good outcome, like, ⁓ Uber delivered me on the far end, like Uber delivered, I only pay if Uber gets me to the destination I requested versus like I'm buying a car upfront, paid in cash, you know, the two extremes, ⁓ you end up transferring risk from buyer to seller, right? Like Uber has all the risk of delivering the impact that was promised by the value proposition.

And so what I'm realizing with LegUp Health is that we're much more on the consumption side with the freemium versus like a subscription product. And it requires a completely different mindset on like success metrics. If it's a 20 % close rate, let's say on average for a subscription service or even lower, given like we're SMB for free, it's probably a 5 % win rate because you need more.

free attracts less qualified buyers. So you have to kiss more pigs ⁓ in order to get, know, or kiss more frogs to find the princess. so it's, ⁓ I ⁓ think that's something that we need to be more considerate about as we're trying to push the free version of LegUp Health, which is like, if we want one free customer, it requires 10 pitches versus like it being as efficient maybe as group health insurance.

Tyler King (24:36)
Mm-hmm.

Yeah, well, especially there's the effort it takes to make the sale, but also the effort it takes to make, to do the service ongoing where like a common topic and kind of SaaS podcasts I listened to is a lot of people play around with removing the free trial for a variety of reasons. I don't want to oversimplify it. There might be other reasons to do it, but one of the big reasons is like to increase conversion rate. And this has always seemed strange to me for a typical SaaS because a typical SaaS has zero marginal cost. So it's like.

Who cares what your conversion rate is? That doesn't matter. What matters is how much money you're making at the end of it all. But if there's a really significant support cost, that changes. If it's like, we're supporting all these free trial users and only 5 % of them convert. If we get rid of the free trial or we do a credit card upfront and we can get that 5 % to 20%, even if the revenue on the backend is the same or lower, our support costs just went down. Leg up health is such, okay, yeah.

Rick (25:51)
Yep. That's efficiency.

Tyler King (25:55)
LegoPelt is such a service heavy company. Now, again, the difference is we can monetize the individual consumers that we serve, even if their employer is not paying us. yeah, getting a bunch of really unqualified people where it's like JD's just chasing them down, emailing them, hey, how can I help you? And they're not even responding. Yeah, that doesn't sound like a great place to be.

Rick (26:15)
No, and I think that's where it's like, I think that there's still enough energy involved in like setting up a leg up health account and adding all of your employees that like, if you're gonna do that for free, you still need to be pretty convinced that there's impact to your company for that. And so like, I think it's gonna take a lot of pitches, more pitches to convince someone of that than even a paid version.

Tyler King (26:43)
Which is

crazy. And a lot of people that would say, this is why you shouldn't do it. Like I've, this hasn't been my experience, but a lot of people say the less someone pays you, the worse they are to deal with. ⁓ the more support they take, the more demanding and entitled they are. ⁓ I'm not, I'm not disagreeing with the approach that you and JD are taking right now, but just a thing I think we should be looking out for is like, is it actually worth it? Or are we just getting a bunch of the worst customers are the free ones, you know?

Rick (27:11)
Yep. that's, I think that gets into my core hypothesis here that has to work in order for us to be willing to do free is one, we can get the AOR. Two, they eventually upgrade to paid or group health insurance. ⁓ And three, they stay with us for a very long time. Like if that happens, then great. Like this is worth it. If we can't, if all of those things don't happen, it's a waste of money and energy and time. If one of them happens, we'll have to look at what the conversion rate is. Anyway.

Back to your free trial thing, there is one other reason you might consider getting away with the free trial. there's conversion rate, there's the efficiency, the cost of the free trial, ⁓ but there's also velocity. So if the free trial is slowing down the conversion to cash, because there's 60 days first, just make a decision a day, that could be a reason to do away with the free trial.

Tyler King (27:41)
Sorry, I- Yeah.

Yeah, fair enough. Yeah, I think there's a lot of reasons, potentially, but... ⁓ Yeah, okay. We've probably, I have more to say, but we've probably talked enough about that topic.

Rick (28:13)
I'm gonna

bring, so what I'm gonna try to do over the next, let's just call it six to eight weeks, as I'm going through this course, I'll just cherry pick some concepts for us to kick around. It'll be good for me to reinforce this stuff for myself.

Tyler King (28:27)
Great. ⁓

So yeah, like you mentioned, I built this stuff in the last episode we were talking about, I was building some stuff for, I'm guessing our listener doesn't really understand what like a benefit software is or what I was working on. And that's probably fine. Yeah. Building some stuff. But, uh, I said, like the title of the last episode was vibe coding. And I was talking about how I was, yeah, you know, using AI very, very heavily to write the code at the, when we talked a month ago or four weeks ago, I was, my version of vibe coding at the time was like,

Rick (28:42)
You're building some stuff.

Tyler King (29:01)
Ask Chat GPT or Claude, ⁓ some stuff, it gives me some code, I paste that code in. ⁓ Have you heard of Cursor? It's a thing, obviously, well, so anyone who's coding knows about it, it was on my radar. I had tried an alternative to Cursor before, but never Cursor. A couple listeners reached out and were like, don't copy and paste, use Cursor. What Cursor is, is it's basically a code editor with the AI built in. So you're not copying and pasting code, you're just in a file and you're like, hey, do this thing, yeah.

Rick (29:28)
Duh. Duh.

Like...

Tyler King (29:31)
The one

I tried before was actually not that impressive. the problem, I mean, I complained about this last episode that it didn't really have the context of the whole ⁓ project. I don't know if maybe cursor is just way better than the other one. The other one I used was like the JetBrains, ⁓ like AI tool. This was like a year ago for anyone curious. ⁓ Cursor is pretty good at like, if I ask it something, it'll search the whole project. So even though like...

It doesn't have the whole project in its head all at once. It's good at finding the parts that matter and kind of ingesting that context. Anyway, absolutely incredible, yeah.

Rick (30:02)
Can I ask a question real quick? Does

Cursor replace another code editor like VS code?

Tyler King (30:07)
So

VSCode is open source. Cursor is like a fork of VSCode. for all intents and purposes, it is VSCode. It just has this AI layer.

Rick (30:16)
Got it. Okay, cool. Thank you.

Tyler King (30:18)
⁓ but it's, it's incredible. I was on the free trial when I was using it. think next time I need to code something up for like up health, it's probably worth us paying the 20 bucks a month. costs, but it, leg up health is the perfect use case for this. Like, ⁓ people at less knowing serum have tried cursor overall. People don't like it. Robert, our lead developer does, but it's, he's not like, this doubles my productivity. He's like, this is, this is a useful tool, well worth the money, but not like game changing.

But that's, leg up health is super legacy. A lot of the code is very custom. We, you know, we started the code base before any of these frameworks existed. So we're not like writing code in the way that other people do. Leg up health is built on Laravel. ⁓ A very well-documented framework that lots of people use and there's like a right and a wrong way to do things. And leg up health is a very like standard CRUD app. It's like, here are the databases for each database. Here's the form to create. Here's the form to update. It's just like leg up health is pretty much.

the ⁓

Rick (31:22)
Mm-hmm.

You

Tyler King (31:47)
And like, yeah, obviously I have to go in and tweak stuff. I'm not, it's not that there's no human work, but I can say definitively the amount of work you put in to learn no code back in the day to build that prototype, you could build a full code app faster than it took you to build that no code.

Rick (32:02)
That's so cool, man. That's so exciting.

Tyler King (32:04)
Yeah. And it's great for our situation too. In some ways, this is like threatening the value I'm providing to like a healthier, but like a company like Legaphealth with all the technical reasons I just said, but also a very, very, very part-time tech person. ⁓ Legaphealth is the perfect company to benefit from AI, especially cause AI is not going to compete with what the core value prop that JD is offering. AI is not going to compete with that.

Rick (32:07)
that's so exciting.

That's cool. I have a topic for, it probably won't get to it today, but one thing I'd like to talk about is there's like this, I don't know, a lot of companies shifting to like, let's be AI first. And I think there's like different meanings for what that means, but that's something I'd like to just explore about Legaphealth. Cause I think we do, we are early enough where we could say like, we're choosing to do things a certain way so that we don't prevent it. We maximize our ability to benefit from AI both on the like,

development side like this and also on the ⁓ on like the sales and service side marketing side even so anyway That's the topic. I just want to plant a seed for maybe next next time

Tyler King (33:11)
Okay, sounds good. So yeah, cursor's great. ⁓ I don't know, well, I'm not coding right now for leg of health. ⁓

Rick (33:16)
Buy it. What are you waiting for?

That's true. Well, you could be

in like five minutes a month, it sounds like and making a huge impact.

Tyler King (33:25)
I could, well, what I want to talk about, we could talk about it on the podcast or if you want in our next partner meeting, I want to get a sense of what's next for the product. ⁓ Cause I don't even know what I, I could go in and like polish stuff up, but like we've said it a million times, making the UX better for like up health just is not, it's not the lever we need to be pulling right now.

Rick (33:32)
Mm-hmm.

Let's use the partner meeting for that.

Tyler King (33:45)
Okay. ⁓ Yeah, back to you.

Rick (33:50)
I got nothing else, man. Let's talk about you.

Tyler King (33:51)
Nothing else. ⁓

One thing that I was thrilled to see mostly because I am a petty and spiteful person, but also because it helps my business. ⁓ Did you see the Apple app store pricing thing that happened?

Rick (33:59)
Yeah

Do they cap it or do they eliminate it?

Tyler King (34:09)
They let, so here's my understanding. Maybe I'm getting some details wrong here. There's a bunch of stuff that happened in, okay, let me start with this. Apple is an evil company that hates its customers and hates its developers. The love that Apple has from so many people baffles me. I don't understand it. That's true of every tech company, by the way, not unique to Apple. ⁓ In Europe for years, they've been losing very, like various regulations have been passed. They've been losing lawsuits and then they've been like getting around it. In the U.S., Epic Games, like the company that makes Fortnite,

sued Apple for, I don't know, like a big lawsuit for a lot of things. My understanding is Apple lost almost, Apple won almost all of the things. But the thing that they lost was previously with Apple apps on iOS, you weren't able to ⁓ tell people in the app, like go somewhere else to pay, right? And so, yeah, crazy. You could, yeah, you just have to like, there's no way to pay. And then the person has to figure out they have to go on the web.

Rick (35:00)
It's so ridiculous.

Tyler King (35:08)
Okay, it's crazy. They lost that a while back. And then they did this bullshit malicious compliance thing that Apple always does where they basically just ignored the judge's ruling and didn't do it. And then it went back to the judge and the judge like really, really slapped them down and actually threatened like one of the Apple executives is apparently has a somewhat real risk of going to jail over this. ⁓ But now Apple has said,

A, you can accept other payment processors and you can link out and all that. There's some details I don't really know, but I was very worried with less knowing CRM. Like, what's the UX gonna be around billing in the app? Because I'm not paying Apple 30 % of our revenue, no way. And I think that that problem just completely went away as far as I understand. Yeah.

Rick (35:54)
Well, that's terrific. I

mean, I technically don't benefit from this like from a business perspective ⁓ anyway, but I assume this will like, like I will probably not notice this, but things will become easier in terms of managing the subscriptions through apps that I have. That's probably like the takeaway, right?

Tyler King (36:11)
Yeah, I would think so.

Yeah, like if you're making an app, there are some apps that are like the equivalent of an impulse buy, like at the checkout counter of a grocery store, right? It's like, it's a dollar, sure, whatever. That type of app probably still like should use Apple's, you pay the 30 % to reduce friction. But yeah, anything that's like a meaningful tool that you're a part of, like, for example, if someone signs up for, let's say they install the Less Annoying CRM app, having never signed up with us before, and they sign up through Apple and then they pay through Apple.

What business in their right mind wants to manage payment for a SaaS product through their iPhone's subscription service? They wanna be able to go into like Stripe or Paddle portals. Like nobody wants, the customer doesn't want that, the vendor doesn't want that.

Rick (36:55)
Yeah, there's a different person probably

who needs to manage that 90 % of the time versus the person who bought the software anyway. So like you need to like to be able to add them like, yeah, totally.

Tyler King (37:02)
Yeah.

And Apple does, yeah, they're so, God, I hate Apple's developer experience. We're also, yeah, yeah. I hate it. ⁓ There are things, what's so frustrating is like the hard things it's better at. Like it's much, much faster. It has way better battery life in general. It's like my Windows machine was just, even though I bought a brand new one, it like inherited all these problems from the last one. Like the start menu just wasn't showing icons anymore and it just wasn't working for me.

Rick (37:08)
Are you still on a Mac?

Any regrets?

Tyler King (37:35)
⁓ but Apple puts zero thought or they are so beholden to the legacy. Everyone thinks Steve jobs is a genius and the shit they designed in 1986 was so good that they have their window management is just garbage. And if you use windows for five minutes, you're like, whether you like it or not, Microsoft has actually attempted to treat the operating system as a tool that opens and manages programs. And Apple has not done that.

So I still like, I want Windows to win and kill Mac despite the fact that I'm using a Mac.

Rick (38:12)
Well, you'll switch back. sounds like you're gonna switch. Next computer is probably not a Mac. That's what I'm hearing.

Tyler King (38:17)
be honest, the main reason I'm sticking with it is AirPods. That's what's gluing the whole thing together is being able to have headphones that work seamlessly with my phone and my computer. And there's no alternative to that in the Android Windows ecosystem. You can have...

Rick (38:31)
What? I have

AirPods connected to my Windows PC.

Tyler King (38:37)
Does it switch back and forth between your phone seamlessly? So if I'm at my computer and I'm at my phone, and let's say I'm listening to music on my phone, and then I press play on a YouTube video on my computer, does it switch to now you're doing audio from your computer?

Rick (38:40)
Like, what do you mean seamlessly?

nonetheless I switch it like through Bluetooth.

Tyler King (38:54)
Yeah, and that's clunky and it does the way every other product works as far as I understand it is it has two Bluetooth connections and it's connected to both. But, it's just like trying its best. Apple did something that's not a part of the Bluetooth spec to like allow it to understand, you're actually using your Mac right now. Therefore the audio on the Mac should take precedent. It just works a lot better. I know that's minor, but like, man, it happens like 20 times a day that I switch back and forth.

Rick (39:17)
That's great.

No, no,

know exactly what talking I experienced it. So that's why I have multiple AirPods. I just switch AirPods. ⁓ What's next?

Tyler King (39:27)
Yeah, that's what I used to do. Yeah.

Anyway, I hate Apple. I want them to

lose and I am a part of their ecosystem and I'm part of the problem. ⁓

What time, yeah, sorry, we're doing this 30 minutes late. I looked at the clock and I'm like, shit, I'm 12 minutes late to my next meeting, but no, I'm not. Yeah, I need to end in like 10 minutes, 12 minutes. ⁓ Okay, what else do I wanna talk about? ⁓ We're probably, I talked about this with you. one thing I wanna mention, we didn't record last week ⁓ or two weeks ago because neither of us had anything to talk about. We did just do a call. Like, ⁓

Rick (39:45)
What you need to end early though,

minutes ago.

yeah!

Tyler King (40:10)
I was just walking around outside. don't know what you were doing and just, yeah. Because of this podcast, feel like we don't do, like we do the Black Up Health Monthly Partner calls with JD in it, but that's like structured, you there's a plan. And then we do the podcast, which as we just spent the last five minutes, me complaining about Apple, it's not like we're too professional about things, but there are things, we're pretty open and transparent about stuff. There's some stuff you just don't talk about publicly because it's unprofessional. It was fun.

Rick (40:12)
Same thing, I was walking around outside.

Mm-hmm.

Tyler King (40:39)
just catching up and sharing all the things that we can't talk about on the podcast.

Rick (40:42)
I agree. I think we should do that more intentionally. ⁓ I miss that.

Tyler King (40:50)
Yeah, the flip side of it is prior to starting the podcast, we didn't talk at all. So ⁓ the key to having friends in your 40s is start a podcast with someone, but then talk to them not on the podcast.

Rick (40:54)
Yeah!

You

Tyler King (41:05)
I think we're figuring this out. ⁓ Anyway, I say all that just to, you've already heard me say this, but it looks like we're probably losing our second biggest client. ⁓ And I'm, which just caused me to, so just to put some, some scale to this, this is about 1 % of our revenue. If we lose all their users, I actually, we've learned a little more. It's possible we lose. It's like a sort of franchise model business. So there's kind of like a corporate level and then like individual locations and

There are about 300 users and I don't know, I think like, I'm just making up numbers. Maybe 50 of them are corporate and 250 or otherwise. We might only lose the corporate level. ⁓ So it might not be that bad, but if we lose all of them, it's about 1 % of our revenue in that ballpark. ⁓ So A, I love that losing, they're basically tied for our biggest. They're our second biggest, very similar in size to our biggest client. Losing your biggest client and only losing 1 % of revenue, great place to be. ⁓

There's a lot of downsides to selling to really small businesses, but this is one of the upsides. ⁓ But it caused me to just go in and kind of look at and reflect on some of the like trends and the numbers in the business and stuff like that. ⁓ One thing prior to, I don't know when this trend actually started sometime last year, I think we were just gradually increasing our average revenue per account or our average users per account, like the account size.

It wasn't going up a lot, but it was very, very, very slowly creeping up from like 2.4 to 2.41 to 2.42. It's been creeping down. So our average account size is shrinking and I've been trying to think what that means. I don't know.

Rick (42:49)
⁓ yeah, you got to slice and dice that.

Tyler King (42:52)
Yes, I'm gonna do my normal thing where a lot of these questions I'm never gonna get the answer to, because I don't think the effort's worth it. part of it is our biggest customer, our biggest customer used to be about 550 users, and now it's down to about 330. So just that alone probably accounts for a lot of this. Sorry, I pulled the numbers up here.

Rick (43:11)
Have you looked at the median versus the mean, like, over time?

Tyler King (43:14)
No, I haven't. That's a good point. Duh. ⁓ No, I haven't. ⁓ But I do see it, this is just like my observation, not backed by data really, but I observe more and more of the big accounts are like, we're just not a fit for them. Like I think 10 years ago.

Either there weren't the tools that were out there were too fragmented or too expensive with this or that. There's just so many more options out there right now. And I think that customers have become more sophisticated. I think there's still a pretty big market of one and two and five user accounts that want the most basic thing. I don't think there are 50 person companies that, sorry, there are, but there are shrinking the shrinking number of 50 person companies that want something like less annoying serum, which makes sense.

Rick (44:06)
Yep, especially as like, ⁓ with AI, like with all the, I feel like the, the requirements, especially with AI of a enterprise, I don't want to call it enterprise, like non SMB, non small business, ⁓ customer is like exponentially increasing.

Tyler King (44:23)
Yeah, can I, by the way, tangent on that, everyone says SMB and enterprise, a medium-sized business is like a 500 % business. It's, right, you, I totally respect that you recognize this. Medium-sized businesses are much more like enterprises than they are like small. I hate that this is how we group them.

Rick (44:31)
Yeah, that's why I said smumb-

Yes.

Yeah, I so VSB very small business is who you target. Then there's small business which can get up in my mind to 100 people. And then there's I call the mid market medium sized businesses which I generally say 100 to 1000 and then 1000 plus is enterprise. That's how I think about it in terms of leg up health. And so we focus on small business and very small business.

Tyler King (45:08)
I like that. I'm not gonna use VSB because no one else, I don't think knows. You still say SMB because that's a term everyone knows, but like, it's a ridiculous, yeah, it's like either a very small company or a giant company. A 500 person company feels pretty big to me. ⁓ Sorry, what, before I went on on that little tangent, what did you just say? Well, this is great radio, folks. ⁓

Rick (45:14)
⁓ SMB is very meaningless.

Yeah

Still getting back

in the groove, Tyler.

Tyler King (45:37)
Yeah, I did want to related to so I'm gonna look up the median thing once we get off here I did want to share ⁓ So one of the thoughts going through my mind is we've lost we've lost like a lot of revenue from retraction if you just say This is maybe not the right way to think about it. But if you think okay our average I've got like this report pulled up here average users per account ⁓

I started tracking this, the numbers go back to October 1st, 2020, it was 2.29 users per account. Then it went up and it peaked at 2.47. That doesn't sound like a big change, but across 10,000 accounts, that's like a lot of revenue difference, right?

Rick (46:19)
That's what 25 % difference in revenue.

Tyler King (46:23)
Uh, don't think it's quite them. Well, here, let me just, if, you don't, if you'll bear with me here, if you imagine there's 10,000 accounts, um, times we're talking about a point, uh, one eight, I think if I'm doing the math right, different, we're talking about 1800 users basically, which, um, that's $324,000 in annual revenue.

Rick (46:46)
It's almost 8%.

Tyler King (46:51)
That was the increase. We added 324,000, then we've lost like whatever, half that or something. My point being like, even though it sounds like a very, very small difference, it adds up. Yeah, yeah, for sure. Now, so that's the bad side is that we've lost whatever it is, 100,000, 150,000 in revenue from retraction. The slight silver lining here though is I've been saying for a long time, we're plateaued.

Rick (47:03)
Yes, it does. That's multiple jobs. ⁓

Tyler King (47:19)
Revenues plateaued and we're losing revenue due to retraction. In the same way I said earlier, you can't expand infinitely. There's a natural ceiling for any given company. You can't retract infinitely either. I mean, you can go to one, you can't go to zero. Like that's churn, that's a different metric. I wonder if the trend here is like, we've got big accounts that will gradually leave or churn, but if you separate them into cohorts, and I can do this math, I'm not.

I don't know why I'm saying this and not actually doing the math, but like this suggests to me that probably our VSB cohort is growing just fine if our bigger customers are shrinking and yet we're still plateaued. You know what I mean?

Rick (48:03)
Yeah, yeah, you just need to slice and dice this. I'd slice it by a couple of different ways, like time-based slices based on signup. Are your signups for the last year performing differently than signups previously? And then you could even look at that ongoing. Is there any difference across industries right now? I think you do a pretty good job of segmenting your customers into verticals.

And then I would also look at number of, like, you could look at it like in terms of like historical number of users purchased, but, you could like try to proxy them into like a company size, like either by, you know, number of employees, like got a survey that they have or publicly available data and in court in that way.

Tyler King (48:50)
Okay, we've got four minutes, then what?

Rick (48:54)
What does it say? Look at the data. I think it could give you peace of mind. Or it could go, crap, nothing is going like I thought it was. ⁓ I see where you're going. like, so what would I do if it's like you could go through each there and if your behavior is not going to change? Yeah.

Tyler King (49:04)
Yeah, here's what you-

Right, that's why I

always, I know this is such a cop out. Anytime there's some kind of like, you should try to under, you're always like, you should try to understand your data, which, or just your business in general. And I'm always like, I'm such a clueless operator that I'm gonna continue the same plan either way.

Rick (49:30)
Well,

think that's not true. think that if you, first of all, I you have a little bit, whether you want to admit it or not, I think this is causing you a, like, not calm. Like, it's not like, you're not un-calm about it, but it's like causing you some worry. And so potentially like validating your hypothesis that you just said out loud could give you peace of mind to stay the course and not worry. So I think that's worth it.

alone, but I think also like if you understand more like what's going well, what's not going well, there's potential to double down on what's going well, not that that necessarily applies perfectly for you, but like there's also opportunity to go learn what's about like why things aren't going well through customer interviews with specific customers ⁓ and like trying to figure out like a better understanding of what you can control to reverse course. So I think there is action to take based on data.

Tyler King (50:24)
Yeah.

Okay, so let me talk through like, we don't have the answer. So this is just a hypothetical, but if the data were to show that, okay, yes, we're doing worse with bigger clients, both in terms of signing them in the first place, retraction, higher churn, et cetera, and we're doing fine with our one to five user accounts, et cetera, that might say, okay, the next time a 50 user company comes up and is like, hey, we like you, but we've got this one problem, like ignore them basically. ⁓ It could give focus.

And just when we're prior, basically when we're prioritizing features, don't like, don't try to please a person that's not going to be pleased. That, that feels like maybe one of the things that I could learn from this.

Rick (51:06)
Yeah, or you could say, hey, your eyes wide open, we're gonna serve this customer, but we know that it's gonna have a lower lifetime and eventually come back to bite us.

Tyler King (51:16)
This is what, yeah, in the past we've always said we'll only go out of our way for the really big customers if the amount they're paying us makes up for more than the distract. Like, okay, we're spending, if you can put a dollar amount on it, we're spending $20,000 supporting them, but they're paying us $50,000. That's net better for the rest of our customers. That's always been the logic we took. what's so hard, like it's so hard to account for distraction. Like, yeah, they're paying us.

Like our biggest customer at their peak was paying us about $100,000 a year, but it was just taking our eye off the ball and focus is so important. Even though that math, it made sense. We thought about it. I thought we were being deliberate about it. And if I could go back in time, I'm like, we should have lost all that revenue. We should have never made it in the first place and just not tricked ourselves into thinking we were capable of serving a 500 user account because we're not.

Rick (52:08)
Yeah, that's a hard, that's very hard.

Tyler King (52:10)
Okay,

yeah, it's such a temptation. All right, we are out of time, but thanks for talking me through that.

Rick (52:16)
All right.

If you'd like to review past topics and show notes, visit startatolast.com. See you next time.

Tyler King (52:21)
See ya!