What does it take to incubate a successful startup? A simple, problem-solving idea, passionate people, and a solid, supportive foundation.
That’s exactly the recipe that created ElectricSMS, a startup that originated here at AE Studio, helping customers manage their subscriptions via text message. Wesley Magness, the founder of ElectricSMS and former project manager at AE Studio, and Melanie Plaza, AE’s head of technology, hung out with Becky Jaimes, a product manager at Salesforce, on the Code[ish] podcast from the team at Heroku.
Melanie and Wesley spilled the tea on the birth of ElectricSMS, its secrets to success, and how AE Studio cultivates a unique environment for helping potential startup founders develop their ideas and thrive.
Becky: Tell me about ElectricSMS.
Wesley: It's been such a serendipitous surprise for me. I have a roommate who is near and dear to me, and she’d be up until three in the morning answering emails [from her customers]. I thought she was a night owl, but it turns out that she's not—most of her customers just didn't know how to log into their accounts. They forgot their emails and their passwords, and I think we can all relate to that.
She has a really cool company [called Gem] that empowers women who are nutritionally deficient to take a single vitamin a day. In a very short amount of time, I saw that [customer service] was a big pain point for her. I thought if you could just use someone's phone number as their login, then they wouldn't have to deal with as much of that pain. We actually found out by exploring [the tools] she was using, [like] Shopify, that you could automate a lot of the actions that people take on their subscriptions using a phone number.
You can skip an order or swap to a different product or flavor. You can update your billing address. You can do a lot of stuff to manage your subscription, but you typically have to log into [the company’s] portal to do it, or you have to reply to an email or whatever.
I'm pretty familiar with messaging bots. So with Gem, I saw a really simple use case for it—we could [use message bots] to help people skip their upcoming orders and swap to new flavors and update their information. That's how we got started. Over a very short amount of time, we checked out how quick it would be to build this using Heroku and Twilio and some of the resources we have at AE, and we found out that this was going to be a really cool and simple thing to start building.
Melanie can explain a bit more about what AE stands for and what we focus on.
Melanie: AE stands for Agency Enterprise. That’s “agency” as in “human agency.” [We think] technology should be empowering and allow people to make decisions that they want to make, instead of tricking them into mindlessly scrolling on an app for hours or not being able to get into their account to change their upcoming orders. We think it should be able to help them have more agency.
So we started AE as a profitable bootstrapped company. We’re a development, data science, and design studio and we work with startups and enterprise companies to build technology products. That's the core profitable business and because we have that, we're not looking for a quick exit, and we’re not a big company that’s thinking about quarterly results. We can think about ways to increase people’s agency through internal projects.
ElectricSMS is one of them. Wesley thought of a way to help people use subscriptions in a way that's useful for them. We think [ideas like this] make good business sense as well. If you treat your users well, it'll make them come back, they'll want to keep using you, and they'll refer their friends to you. So it’s a good thing for us to be thinking about what's good for people, but also what's good for companies, and I think ElectricSMS is a really good example of how those come together really nicely.
Wesley: We really do believe that if you treat people well, then you'll have a longer and more profitable relationship with them, as opposed to the dark design stuff, where you’re holding people's credit card info hostage, you don't tell them they're about to get charged, and they look back four months later, and they're like, "I just paid $80 for a toothbrush. What?"
Especially right now, when people don't have as much expendable income, and they're being a little bit more cautious and concerned about where their money is going, it makes so much more sense to be transparent and clear [with customers].
That was the hypothesis with ElectricSMS. Three days before you get charged, we give you a heads up. Like, "Yo, you're about to pay 72 bucks for this. Reply with ‘modify order’ or ‘skip’ or whatever you'd like." It's the highest point of engagement, too, because then you get people to respond.
Becky: Yeah, if I get the same thing in an email, chances are I'm going to ignore it. If it's an SMS, then I just reply and say, "Actually, no, I don't need an extra toothbrush. Thank you very much."
Wesley: Exactly, so that was another reason for SMS. It wasn't just so that it would make it easier to log in. It's eight times more likely to get not only looked at than an email, but also responded to, which is pretty cool. And not only responded to, but responded to within the first 15 seconds.
I think of myself and my mom and people that I know who get charged for stuff, and they wish they just had an easier way to manage that whole thing. So again, our hypothesis was if we treat people well, and we build technology that allows people the transparency and the ability to act on where their money's going, they're going to have a longer relationship with the brands that they're purchasing from.
And we've proven that out now; we're seeing the churn rate just totally plummet, which is really cool. It's a paradigm shift because a lot of companies do it the other way, but when you start to actually see the data panning out, customers do skip [instead of cancel]. They say, "This month, I don't need it.” No big deal. They then go on to have multiple repurchases because they were given the flexibility that they needed. We’d rather people have a longer relationship than cancel immediately.
Melanie: I'm not out of my apartment as much these days with COVID, so I was trying to cancel my gym membership, and I couldn't cancel it in the app, of course. I had to email them. And then they were like, "Okay, now we need to talk to you on the phone, come into the office, bring your social security card." And people think that that's going to keep [customers] in there. I think I wound up paying for it for another month accidentally, but I think people are really finding these days that they don't want to be treated like that. You might get some quick gains from people by tricking them into doing things that they don't want to do, but it doesn’t work in the long term.
Becky: And then they hate you.
Wesley: Yeah. I'm not going to name names, but there's plenty of them out there.
Becky: I have a dog food subscription and I thought, “Oh man this will solve my problem. Just get me the dog food.” But then my dog started getting really old, so he started eating less and less. I ended up with piles of food, and to cancel it was worse than canceling a magazine subscription in the 90s.
Wesley: This is getting to the heart of it. That is not human agency. We're talking about something that takes so much time when we really do have so many things that we'd like to be thinking about outside of that. We really just want to focus, at AE, on products and services that make things easier and look at the long-term-ism of things too.
Melanie: Yeah, we really want to create products that increase agency right now, like ElectricSMS, but we can also think about things that are a little more creative, in the future, far-off things that are not immediately going to affect anything, but if they do come to pass they’ll have a huge effect on people.
I'm really interested in the effective altruism movement also. I think that a lot of this stuff aligns well with that. You should do things now that are good for people and help them in the best way possible. We donate 5% of our profits to highly effective charities—that's a thing that's good to do right now for people that improves their quality of life.
It’s pretty exciting that we get to do that, and we're working on a bunch of other small things internally as well as ElectricSMS. We made a Slack scheduler app where you can schedule messages so you don't annoy people at random times during the day. That was a thing that we didn’t spend much time on just to see if people would want to use it. Then when people really liked it, we spent more time on it, and that's what we're thinking about doing with a lot of other stuff. It worked well with ElectricSMS, and I think it’s a good way to validate ideas that might help people. See how they function in the wild, if they're practical, and if people will actually want to use them.
Wesley: Yeah, Melanie was getting to a point that we think about a lot here at AE. We don't want to just incubate ideas. We want to incubate people, and I am one of those people. Especially as an "entrepreneur" in the past, I wanted to have a little bit more of the disciplinary structures that I needed, which I can get from a full-time job at an agency. Then when I do have a good idea, [I can] execute on it and think about the work that we do for clients. It's been a very incredible opportunity to build in really strong external structures like daily stand-ups and agile meetings like design and story writing and estimation meetings and retrospectives. All of that is something that we use on a day-to-day basis that we can then apply to our internal projects.
So when an idea comes about, we think, "Okay, let's and see if [we] have a customer for this. Is there someone who really needs this?" And we find customers first before we invest too much time in building something out. For ElectricSMS, I knew that there was already a customer that was in need. I ended up pre-selling ElectricSMS, I gave an unlimited license to our first customer. And that gave us the confidence moving forward, knowing that we were going to be able to actually invest time and resources into this.
I think there's this romantic idea that as an entrepreneur, you have to be working with a candle burning on both ends—literally like a candle with wax dripping by your computer,—reading all of Paul Graham's essays (which you should, by the way) and having them pasted on your wall. And it’s true, you do need to hustle and have grit, and you need to know how to put the work in.
But having the ability to be incubated at an agency, especially one like AE, has been tremendously valuable for someone like me who doesn't want to be burning the candle at both ends, but really does need to have a dōjō to go to, where I can also practice all of my skills as a PM on other people's really impressive startups. I get to watch the founders that we work with and learn about all of their traits, and I get to see the diligence that they have on a day-to-day basis. I get to see the inspiring stuff that they pay attention to that I can mimic and model after. And so it's a really interesting situation that we have at AE where we can model our internal projects after what we’re working on.
Becky: And you mentioned earlier that there's no VC funding, that you guys are bootstrapped, right?
Wesley: Yeah. AE itself is bootstrapped. For all of us who’ve been in the situation where we were VC funded—and it's not to say that there's something super negative about that—it's really nice to be able to make decisions free of interference, and we've really created a nice little incubator for that.
Melanie: We've actually grown a lot too over the past two years, a lot faster than I think we were expecting to. And I think a lot of the reason is because there's a ton of alignment between working on client projects and working on internal projects. The people who are the best at working closely with startup founders, or closely with bigger companies that want to be more agile, are also really entrepreneurial-minded.
It's interesting because as a startup founder, you get emotionally attached to your projects. We really care about our client projects going well, but we don't necessarily have the same biases about them that you might have as a founder of your own company where you think, "This is my baby." It's good to get that reality check and to try to make a product successful in a very methodical way. When you apply that to your own startup, I think it makes it go a lot better.
For you, Wesley, with ElectricSMS, you really care and hustle. But I've seen too, even over the past year, you're rational about it. You realize sometimes that you might have to think about something differently than you originally did. And I think a lot of that comes from working really closely with clients, because you're able to exercise that.
Wesley: It's true. Everybody says, "Listen to your customer." But a founder can be so obsessed with the idea and their attachment to it that they want to listen, but they just don't. We get to separate the signal from the noise. The noise is the emotional attachment and those ideas that I have or that the team has. The signal is really like, "Well, okay, eight of our customers are asking for this. We need to focus on this now." So we prioritize that and just get that done. That's proven time and time again to be the best business model, but we gain the emotional discipline to do that through the external work we do at AE.
Becky: How do you pick your customers?
Wesley: They pick us. We've had a lot of really great referrals. We work well with a lot of companies, and we end up doing great work, and that's a virtuous cycle.
Becky: And for people that need someone like you to help them execute their idea, what advice do you have?
Wesley: I think I went about it in the best way that you can, which is finding your first customer before you even start working on something, and just knowing that there's someone out there who’s willing to pay for what you're about to build. Then learn how to develop it quickly and don’t waste too much time.
That’s why we’ve used Heroku, because it's the easiest thing for us to leverage to get things up and running really quickly. There are other external APIs that exist now too—like Stripe for payment processing. So much exists already that can be encapsulated into what you're building, and so we try to encourage people to do as much as they possibly can on their own before coming to someone like us, because that not only proves the business model, but it also proves they have a certain type of personality. They're going to get it done no matter what, but maybe they just need more development resources and coaching.
Melanie: We also work with people who are a little earlier in the timeline, but we do think it's really important for them to build the MVP. Some things are a little harder to do on your own, but you can still definitely do the part that Wes was talking about where you validate it. Even if you don't have a product yet, do some user research. Talk to people you think might want it and see where their needs are. Is this actually something that people would use?
We do sometimes work with people who just have an idea, but they have some real traction behind it. People are asking for it, and they want it, and there’s a real market need for it.
But for them too, we encourage building an MVP first. It can be really tempting to go beyond that, and you can think of so many ways that your product can be improved, but it’s better to be scrappy in the beginning because even if you know customers want something, specific things might need to be pivoted or tweaked.
So we think it's best to try to get it into customer's hands earlier, [providing] the most basic version of what you're trying to do and spending the least amount of time that you can on that. And then you can iterate on it and do testing along the way. It usually makes for a better product in the end if you do this iterative build out. We do things really agile, and we're constantly trying to deliver working software to [clients] so they can see things as they're being built rather than just being like, "I have this huge list of things I know people want. Here you go, build a Lamborghini style version of that. All of it, right away.” In the end, it's usually not as good.
Wesley: I have to say Shopify is pretty killer for consumer packaged goods and e-comm stuff. For the CRM stuff, appointment schedulers that have payment processing in them, there’s Squarespace, and Webflow is pretty cool as well. And then a lot of plugins like Google Drive and Google Sheets and all that stuff are used in tandem with it. We're seeing a lot of momentum in those platforms.
Becky: Do people still use WordPress?
Wesley: Unfortunately, yeah. No, I mean, it's not that bad. People still definitely use WordPress. We always get an MVP built out of WordPress, and we're like, "Oh no..."
We have so many great new startups that are coming up, and it's just amazing to watch them getting built on Shopify too. I'm really deep into Shopify's ecosystem right now with ElectricSMS, so I'm really impressed with what's being built on top of it. I think it could all be done really well or way better, but I'd say Shopify is pretty great.
Becky: The barrier of entry is not very steep either. If you can build something in WordPress, do yourself a favor and just go to Shopify if you're going to do e-commerce.
Wesley: Also, being part of Slack communities too and learning from people through communities that you're chatting with.
Melanie: The no-code space is also really blowing up these days. You can do a lot of stuff in there to at least make a little prototype of what the functions of your product might be for people to test out and validate.
Becky: For all those people that are working on their side projects, should they reach out to agencies like AE to help take it to the next level and to refine their idea?
Wesley: We actually have an incredible process. It's a scoping session, and obviously, we have to be cautious and not scope everything out, but we run through what's been built and what they're looking to do. Then we talk about possible solutions and what an ideal MVP would look like. And again, as Melanie mentioned, we really focus on what an MVP is, a minimum viable product.
At AE, on a meta level, we're really thinking about being a source and centralized studio where we can have multiple little incubated things going on, and where we're sharing resources and thinking on a more local-global scale of how we can help our fellow entrepreneurs and people in the area. So there's a lot to look forward to. It's definitely the start of a really cool conversation.