PTM 030 – Going from Free to Paid Business Model with Phil Anderson of BudgetSimple.com

Philip Taylor: Welcome to the podcast. I’m Philip Taylor. This is the Part-time Money podcast. My site is ptmoney.com and today I have with me, Mr. Phil Anderson, founder and creator of Budget Simple. That’s at budgetsimple.com. It’s really cool to talk to a fellow entrepreneur that also has sort of a personal finance element to it. I definitely encourage you to go out and check out that online budgeting tool as well as an app and some other things. Phil, welcome to the podcast.

Phil Anderson: Thanks, glad to be here.

Philip Taylor: I’m excited to talk to you about how you created this product and also about making the transition from doing this on a part-time basis to this now being your fulltime gig. That’s a wonderful success story, congratulations and I look forward to talking to you. The first question I always ask folks is, what really motivated you to start doing this?

Phil Anderson: There are probably two separated motivations. I had a motivation for working for myself and a motivation for creating the product. The motivation for working for myself is essentially because I felt like everyone I ever worked for was stupid, right? And I’d do the job better than anyone else and so the only way I could really prove to myself, if this was the case, was if I worked for myself and obviously I would be the best boss of myself. Separately I always had this interest in personal finance and people always ask me how I got out of debt, things like that, what I used to budgeting, and that’s how I created this product. Those things worked separate initially but they happen to work together in the end to achieve the same goal.

Philip Taylor: Awesome, so what’s your background?

Phil Anderson: My background is pretty varied. It’s mostly been in IT. I actually have a degree in geography and I’ve been a programmer, a systems administrator, a project manager. Above all, I like to consider myself an entrepreneur because I like to do things on the side.

Philip Taylor: When did you start doing that?

Phil Anderson: I created one of the first used car sites on the internet back in 1995. That was ausedcar.com which is actually still around.

Philip Taylor: Usedcars.com?

Phil Anderson: Ausedcars.com. There is an ‘a’ in front of that. I was one month away from getting usedcars.com. You would see a fabulous gold wall behind here because I would be a billionaire. But, ausedcars.com helped pay my college expenses to a large extent. It was number one on Yahoo way back in the day, which means nothing now. It’s just another used car site now. I think I have an entrepreneurial family. My dad and my grandpa both started businesses so it’s kind of always been expected that I would do something for myself.

Philip Taylor: So you sort of always wanted to do your own thing and it sounds like you’ve been trying to do that for a long time but you had to rely on a steady full time job as well. So talk me through the timeframe of starting Budget Simple and the interim— how long you have worked for someone else during that period.

Philip Taylor: That’s a good question and it’s actually quite a long timeframe. I was originally working for the federal government in 2006 when I had this idea for Budget Simple. Actually, a little bit of it came out while I was in Paris—I was on vacation when I thought of this. I came home and just had this idea to make online budget because I couldn’t find anything out there. There were some job script calculators your bank offered and things like that, but there wasn’t anything to budget in the way I budgeted that I found successful, so I decided to throw this online app together. I applied my programming skills and put it up there as free online budget. I didn’t really see any way of making money at the time, as you do on all the data entry manually. Later that same year Mint came out and it was like, “Whoa, this is amazing!” It does all my banking accounts for me—it’s done. They just crushed it, they killed the whole market of budgeting. So, I just let it simmer there, honestly and continued to work on my day job for the next couple of years. I think it was in 2010 that I started looking at the traffic I got since the site was still there. Every now and then I’d get email requests and I was, like, “People are still using this?” I mean, I made it in a couple of months and it’s still was kind of buggy so, maybe there was a demand for this type of software out there. Something that was not really filling the void or maybe something missing from the other things out there. So my first question was, “Is there a way I can make money from this?” Because I’d love to improve the software and make it better but I have to focus my efforts where it’s going to be worth it. Then I added the Budget Simple Plus which is essentially a premium version of Budget Simple. It’s for people that are—it helps people get out of debt. Once you are out of debt you can start building your savings and investments. I wanted to target people that were in the second tier that had already cleared their debt and just wanted to build their savings and keep their finances on track so I targeted features for that group of people. I just put a random price on it. I think when I launched initially, it was $50 a year or $6 a month. My thought was, if anybody pays for this then it’s worthwhile to somebody. Essentially, I turned that on and a couple of people start paying for it. It was really just a trickle at first, but the fact that anyone did was kind of a validation point to me that if it was valuable enough that they would part with their hard earned money, I was willing to put more effort into it. Then people started trickling in and the number of users just started rocketing. In the past two years I focussed more on it— improving it. I think used to get around 1,000 users a year. In 2010, around the time I launched Budget Simple Plus which was mentioned in Women’s Day, now it’s thousands every month. To this day I think it receives 5,000 to 6,000 users every month.

Philip Taylor: Nice! Before you went to Plus you had 1,000 users, right?

Phil Anderson: Yes. A couple of thousand. Maybe 3,000 or 4,000. There was enough to say, “Okay, there’s some people signing up for this,” but wasn’t enough to really get me excited that there was a huge business there.

Philip Taylor: And when you turned on the Plus, only two people took you up on that?

Phil Anderson: Yes, something like that. The first month or two there were only maybe two or three people. Because honestly, in the first version of Plus there weren’t a whole lot of differentiating features. There were some new graphs, some— I actually forget what was in that original one. It was really just some stuff I spent a month working on to try and add some value to see if some users would pay for them. But I removed the ads. At the time there were ads and other things like that.

Philip Taylor: Were you able to use some feedback from those initial free users to help build a Plus version?

Phil Anderson: Yes, exactly. I looked through the support emails I got and a lot of times people were saying, “I’ve been using this for years and I really love that it’s free. Thank you for doing this, but if you could do ‘X’ and ‘Y’ and ‘Z’ then I would really love it.” And I was, like, “Alright, maybe I’ll try ‘Z’,” or I would put some keywords. If it was something really obvious, like there should be a dollar sign, that’s easy. I can throw that in the free one. But, if it was something more complicated like building something that calculates your savings, maybe that’s a Plus version.

Philip Taylor: Nice, I love it. You built what the users wanted. That’s great. And you didn’t invest any more time unless it was going to be something that’s giving your return back. That’s a fantastic strategy. So when did you flip Plus on? What year was that?

Phil Anderson: 2010.

Philip Taylor: And how long before you left the full time job?

Phil Anderson: We’ll say a good two and a half years because I just went fulltime in September 2012, so just this last September.

Philip Taylor: Awesome. What was that like?

Phil Anderson: It was great. I mean, I liked the job where I was working. But again, it was one of those things where I always dreamed of working for myself. I could see the potential in the software just at the rate it was growing, and I noticed that if I spent more time improving it, I got those returns back in terms of people signing up—people paying. I just imagined that if I could spend all day, every day, working on this thing, where could it go from there?

Philip Taylor: Financially, talk about that making that decision. Did you have a lot of savings saved up? Was this going to be replacing 100 percent of your budget? Talk about it from that perspective.

Phil Anderson: Yes, luckily I have always been, I guess, an amateur financial expert because I created software to help get me out of debt and build my savings. I do follow a lot of online blogs that have these different ways of making money and things like that.

Philip Taylor: Who do you follow?

Phil Anderson: I like you, of course!

Philip Taylor: Oh, come on, whatever!

Phil Anderson: Mr. Money Moustache is a good one. Get Rich Simple or whatever— it’s good. I have to look at my feeds. I don’t remember the names of them but I follow a lot of people. There seems to be a common thread a lot these days that people believe in. Certainly one is living lean which has made a big believer in me. I have never bought fancy cars. I still drive a ’99 Honda Civic that has 170,000 miles on it. Building savings, making smart investments and things like that. So over the years I’ve built up more than enough of a cushion that I can feel comfortable doing this. I don’t feel like it’s a huge risk. It’s obviously less than the income I was making in my day job. But, I think the potential is there to be much more than that.

Philip Taylor: Definitely, that’s wonderful. What is your financial philosophy in terms of how you took your personal finance philosophy and applied that in the tool to itself? If you could say that there’s a philosophy that you have that is in effect in the tool, what would you say that is?

Phil Anderson: The core of it is based on monthly budgeting. A lot of people want to focus on pure cash flow. Budget Simple and the philosophy I have really works best if you have a little bit of a buffer so that you are not as focused on cash flow, you are more focused on month-to-month budgeting. The reason I believe in month-to-month is, regardless of when you’re paid, the biggest expenses are almost always on a monthly basis. A lot of people ask, “Can’t I do a weekly budget?” But to me it is impossible to measure your progress because one week you are paying the rent, the next week you are paying utilities and it’s really hard to measure if your spending is increasing or decreasing, so it’s always based on monthly. The key is, it’s important to track everything. One of the big differences between me and Mint— and the reason why a lot of people ask, “Why would I use your software? If I use Mint, it does it automatically,” is because I think tracking manually is the best way to really get a handle on your finances especially when you are budgeting for the first time, because the act of inputting every expenditure really should make you think about every expenditure. Those little $5 or $10 a month things that you forget about will sneak up on you and you won’t really notice too much with an automated tool. When you are inputting it manually, you think about it, “Do I really need that $10 here or do I need that $10 there?” It’s all about really keeping a close eye on your finances.

Philip Taylor: That’s awesome. You have a IT development background, so talk about how you actually built the product. Obviously it was an online version first. Now you’ve got some mobile versions as well. Talk us through those developments.

Phil Anderson: Sure. The first version I used the technology called Dot Net which was kind of used in corporations. It was just what I knew—I could do it quickly, it was something I did. When I rewrote the second version around the time when I was working Plus I switched to PHP. It helped me learn the tool. I was learning a real-world skill regardless of whether I would use it myself or not. The mobile part, which is the big part nowadays—there’s an Android and iPhone out, I did the Android one myself because I can do their apps, and with the iPhone one, I worked with a friend on a contracting basis to develop. The servers and everything else are just things I’ve experienced in the past.

Philip Taylor: Do you have any help in terms of employees or contractors, do you have any help or is it still just you?

Phil Anderson: I do. One of the key things you need to know when you’re working for yourself and running your own business is what you’re not good at. I am reasonably confident with the technical things but something I’m really terrible at is the graphical aspect of things. I guess if you were to ask me to design a webpage and draw a picture it’s going to be stick figures and graphics from 1996. One thing I must entirely outsource is the design. Right now I work with two friends that are working on part time basis to help me with the design part of things. And also I mentioned the iPhone app, that was another one. I knew the learning curve of learning to develop iPhone apps wouldn’t be worth the return I would get. right away so I had a friend develop that as well. Yes, the things I am not good with I definitely contract out.

Philip Taylor: That makes a lot of sense. So in terms of marketing early on, how did you get users? What are some of the newer things that you are doing to get users onto the platform?

Phil Anderson: That’s a good question. I kind of have a good reputation locally as being good at SEO which is search engine optimization. It’s something I accidentally became good at. It’s not that I ever learned to do it. I never do anything shady. My best advice for SEO would be to start a site and leave it there. Of course, optimize the search engine to find the site by what it is about, then leave it there. Like I mentioned, the site I launched in 2006 basically didn’t do anything for two years. I think I have a graph and I can share that, if you look at the user growth it was something like a straight line, a sharp line, a huge line, and then from there it keeps going up exponentially. So the first two years if you look at it, it looks like the site isn’t doing anything so you think, “Why don’t I shut it down?” Luckily it doesn’t cost anything it runs so I left it up. I really don’t have any good marketing features from earlier years because I just kind of put a site out there. I think I shared it with some friends on Facebook maybe, or on Myspace or wherever it was at the time. It just kind of spread from there. Honestly, word-of-mouth marketing is the most powerful marketing I have, because I’ve got a lot of people that find out about it—they love it especially because it’s free. I think maybe they feel guilty for getting something for free so they tell their friends, “Hey there’s this great software that’s out there,” so the word-of-mouth is the largest part. Since I have gone full time, of course, one of the things I want to focus on is the actual marketing, spreading it beyond word-of-mouth. From there I started with the social marketing, so we have a Facebook page, a Twitter account. If I have a Google+ page, I don’t think I use it enough because the return isn’t there just yet. But, spreading it over social networks helps to some extent in addition to contacting barters like yourself, if somebody is interested in what you’re doing. It’s kind of done basically like that.

Philip Taylor: In terms of price point, has the price changed on the Plus over the past couple of years that you’ve been dealing with Plus?

Phil Anderson: It has. It’s actually gone down. The initial price was $50 a year or $6 a month. I started thinking about it and it didn’t feel like a $50 a year product for me. While people were paying for it, I didn’t feel like they were getting the value out of it yet, but one day I still think I want to get it back to that point. I felt like this was more of a $30 product so I asked other users, “What do you think this is worth? What would you be willing to pay?” I got some ranges between $1 a month and $100 a month, they were all over the place. Essentially, the thing that seemed most comfortable was the price point of $30 a year or $4 a month.

Philip Taylor: That’s very reasonable.

Phil Anderson: The way I always tried look at it is, am I providing at least that much value to the person? We’ve had people say that using the tool has saved say $15,000 or something, so the tool to a person like that would be worth $100 a month or something like that. It’s really a combination of understanding how much value they’re getting out of it. I do plan on raising the price of it in the coming years, but I need to add the value into it before I really feel comfortable doing it. Especially because the people using it are trying to get on budget. They’re very price sensitive.

Philip Taylor: Yes, I know what you mean. How many users are there currently right now in the system if you don’t mind me asking?

Phil Anderson: It is 96,000, I believe this week. So it should be around 100,000 by the end of this month.

Philip Taylor: And I think you said, one percent of that is on the Plus side?

Phil Anderson: Right, yes. It’s close to around 1,000 users on Plus now.

Philip Taylor: What is the cycle you find for people staying with the subscription?

Phil Anderson: Well, there is a definite cycle to budgeting which is around January 1st of every year since everyone wants to budget— everyone has a New Year’s resolution for budgeting. So January is essentially our Christmas. That’s the happiest time of year. People tend to start trailing off in March or April. This is the time where I start finding out if the people who signed up on New Year’s are serious in keeping their resolution or whether there was something with software that they didn’t want to stick with. Typically, if someone is a long term user we have them for at least 18 months. If they are a short term user, it’s just a month or two. Usually they realize by the second month whether they are using it or not. But certainly it is a very cyclical trend that the early part of the year has large signups and then it trails off. Sometimes we’ll see another pick up in September. My assumption is that that’s college kids going back to school and trying to understand their finances. The software is also used in couple of schools to teach financial education, so I think that’s another part.

Philip Taylor: So, at only $30 a year, I imagine you get a lot of people in January who just pay the $30, and even if they don’t use it to the rest of the year, you’ve already taken that income in, right?

Phil Anderson: Yes and no. You get a free 30-day trial. I wouldn’t say there are a lot, but there are a couple of people— probably out of ten people that signup, two will decide to cancel from 30-day trial. So everybody has the opportunity of getting out if they are not using it. That’s because I just wanted it to be another service they are using and not another expense that they’ll forget about.

Philip Taylor: If I am going to use Budget Simple I don’t provide any of my real personal information, especially with the free tool. I imagine that was pretty easy to manage when it was just a free tool that you manually uploaded information to yourself. Sort of like a shell—no real security factor issues with it. But, I imagine when you went to the Plus where you started taking payments and it doesn’t have any sort of bank account inter-activity with them… Which I don’t think they do yet, right?

Phil Anderson: What’s that? The Plus doesn’t have any—

Philip Taylor: Does it have any kind of connection with bank accounts or anything?

Phil Anderson: No. The Plus one still involves manual entry. In May I’m launching— I don’t know if I’m putting Plus-Plus, but I’m launching another version where you can actually link your bank accounts. So I guess that answers your question of security since that’s already been developed.

Philip Taylor: Oh, okay. So, maybe talk about the legal and security issues with the first Plus, and then we’ll jump ahead and talk about the next phase.

Phil Anderson: Security from the very beginning has always been a huge concern of mine because even though one of the selling points is that you don’t give proper information, the only thing that’s personally identifiable is your email address. Sometimes people are even concerned about that, so I suggest you make a thorough email address. As long as you’re checking that email so you can get password reset and things then nobody will have any idea about your finances. With that said, I still would never want to see anyone’s finances lead to anything, so security has always been our number one concern. Experts I know do periodic testing on the systems to see if there are any loopholes, security issues and things like that. In terms of legal implications, there’s not a lot there for the current version. Because, again, I have a privacy policy that I had put together that essentially tells people what data we share, what we do with data, what would happen if the data were to get out. There’s a comprehensive privacy policy I covered, but beyond the average, there’s not a whole lot of other legal ramifications. We don’t give advice on buying specific securities or anything so there’s no SCC regulation required. Moving into the new version where we actually are taking bank account information… Well, going back a step where you were talking about the Plus taking payment information, I work with a third party for that. I work with Stripe to take the payment information, so they really handle our security. I don’t store any credit card details on our server. I’m just a pass-through. You know, we have SSL to keep the data secure from being travelled, but essentially that’s all handled by somebody else. I do as much as I can to avoid having any kind of payment information stored on my server. I just know when your credit card expires so I can tell you to update it. Going to the new version, where people are actually entering bank account information, that is also provided by a third party service who handles our security service— essentially storing your bank account credentials and everything. But since you still update by putting it into my site and connecting, there has been a lot of thought put into it in terms of keeping it secured and protected.

Philip Taylor: So talk about what’s next for Budget Simple and your entrepreneurial endeavour.

Phil Anderson: Yes. The next thing I’m doing is really just investing back into the site. Right now we’re doing somewhat of a ‘rebrand’ but it’s still going to be Budget Simple. It’s going to have a complete new design that we’re working on now. Along with that, we’re going to have this new mode where you can link your bank account information. What I’ve found from the users over the years is that a lot of people come to the site looking for a budget because that’s what they remember hearing about—hearing their parents talk about when it came to organizing their finances. What they really want to know is, “What do I do with my money? How do I pay off my credit card? How do I build my savings? I have 60,000 in saving, what do I do with it?” The middle class is kind of completely unsure of that question because financial advisors don’t want to work with people in the middle class because there’s not very high margins. And the lower class… Like, if you’re really, really struggling, there are non-profits. But even those just help you get off the bottom rung. My thinking is that people want an automated financial advisor of some sort, so that’s where Budget Simple is going. We are giving you the ability to link your bank accounts. We’ll show you your current budget by looking back at three months of financial data and say, “Here’s what your budget was, where do you want it to go from there?” So, it’s still entirely centered around budgeting, but being able to do it in a more automated fashion and easing the pain of manual entry to some degree.

Philip Taylor: Sounds like you’re fired up about the business again and you’re looking forward to making big strides in the future, so congratulations again.

Phil Anderson: Thanks. It’s exciting, it’s a easy business to get fired up about because when I see the success people have with using the tool—there’s not a single day that goes by that someone doesn’t email saying something has changed their life. I remember I had a quote once from somebody who said it saved their marriage because they used to fight about finances and now don’t. So it saved somebody from divorce.

Philip Taylor: That one you need to put on the testimonial page right there.

Phil Anderson: Exactly. So it’s easy to stay motivated because I know I’m helping people in some way.

Philip Taylor: That’s wonderful. So, are there any other questions I didn’t ask?

Phil Anderson: I don’t think so. But anybody that tries out the tool, I’d be happy to get some feedback to see any way we can improve it. That’s one thing I’m really big about, providing top customer service. You know, I respond everybody within 24 hours. Features implemented are based on how the community feels. They’re needed. One of the things that we are doing right now is adding foreign currency support because there is a fairly big community evidently in Greece, ironically, that uses the software… And in France.

Philip Taylor: Nice, very cool. Congratulations. Now, where can people find out more about Budget Simple and/or connect with you?

Phil Anderson: The best way is to go to budgetsimple.com. If they want to connect with me they can use the contact tab there. Almost all those emails will get to me.

Philip Taylor: Thank you so much Phil, for being on. I am sure people enjoyed the interview and took a lot from it. Thanks so much for sharing, and take care.

Phil Anderson: Thank you Philip.